EXHIBIT 2.4
SHARE PURCHASE AGREEMENT
BY AND AMONG
CAREER EDUCATION CORPORATION, AS PURCHASER,
AND
▇▇▇▇ ▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ KING, AND ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
AS SELLERS
DATED: JUNE 30, 1997
TABLE OF CONTENTS
PAGE
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1. Certain Definitions..................................................................... 1
2. Sale and Transfer of Shares; Assets and Liabilities of the Company at Closing........... 9
2.1. Purchase and Sale of Shares................................................... 9
2.2. Purchase Price; Payment....................................................... 9
2.3. Company Assets and Liabilities; Purchase Price Adjustment..................... 10
2.4. Closing. 12
2.5. Section 116 Certificates...................................................... 12
3. Closing Deliveries...................................................................... 13
3.1. Deliveries to Purchaser....................................................... 13
3.2. Closing Deliveries to Sellers................................................. 16
3.3. Other Closing Deliveries...................................................... 17
3.4. Post-Closing Covenants........................................................ 17
4. Representations and Warranties of Sellers............................................... 18
4.1. Incorporation and Organization of the Company and the Subsidiary.............. 19
4.2. Ownership of the Company, the Subsidiary and the Schools...................... 19
4.3. Capacity; Authorization; Binding Effect, Etc.................................. 20
4.4. No Conflicts, Etc............................................................. 20
4.5. Investments................................................................... 21
4.6. Capitalization................................................................ 21
4.7. Book and Records.............................................................. 22
4.8. Compliance with Laws; Licenses and Permits.................................... 23
4.9. Recruitment; Admissions Procedures; Attendance; Financial Aid; Reports........ 24
4.10. Regulatory Requirements...................................................... 25
4.11. Title to the Assets.......................................................... 25
4.12. Material Miscellaneous Contracts............................................. 26
4.13. Tradenames; Confidential Information......................................... 27
4.14. Financial Statements......................................................... 28
4.15. Receivables.................................................................. 29
4.16. Inventories.................................................................. 30
4.17. Bank Accounts................................................................ 30
4.18. Litigation, Etc.............................................................. 30
4.19. Insurance.................................................................... 31
4.20. Environmental Matters........................................................ 31
4.21. Employee Benefit Plans....................................................... 32
4.22. Employment Matters........................................................... 33
4.23. Labor Relations; Compliance.................................................. 35
4.24. Tax Matters.................................................................. 36
4.25. Brokerage.................................................................... 38
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4.26. Affiliate Transactions........................................................ 38
4.27. Absence of Certain Changes.................................................... 38
4.28. Indebtedness.................................................................. 39
4.29. Conduct of Business Since Interim Balance Sheet Date.......................... 39
4.30. Accrediting Body Approvals.................................................... 40
4.31. Delivery of Documents......................................................... 40
4.32. Disclosure.................................................................... 40
4.33. Residence of Sellers.......................................................... 40
5. Representations and Warranties of Purchaser.............................................. 40
5.1. Organization and Corporate Power.............................................. 40
5.2. Capacity; Authorization, Binding Effect, Etc.................................. 41
5.3. No Conflicts, Etc............................................................. 41
5.4. Litigation.................................................................... 41
5.5. Brokerage..................................................................... 42
5.6. Accrediting Body Approvals.................................................... 42
5.7. Disclosure.................................................................... 42
5.8. Purchaser's Knowledge; Resources of Purchaser................................. 42
5.9. Maintenance of Insurance...................................................... 42
6. Additional Covenants of the Parties...................................................... 42
6.1. Confidential Information...................................................... 42
6.2. Additional Covenants of Sellers Pending Closing............................... 44
6.3. Employees..................................................................... 45
6.4. Exclusive Dealing............................................................. 45
6.5. Additional Covenants of Purchaser Pending Closing............................. 45
6.6. Initial Public Offering....................................................... 45
7. Conditions to Purchaser's Obligations.................................................... 46
7.1. Due Diligence Review.......................................................... 46
7.2. Financing..................................................................... 46
7.3. Truth of Representations and Warranties....................................... 46
7.4. Performance of Agreements..................................................... 46
7.5. No Material Adverse Change.................................................... 47
7.6. Litigation.................................................................... 47
7.7. Accrediting Body Approval..................................................... 47
7.8. Proceedings................................................................... 48
7.9. Financial Aid Compliance Audit................................................ 48
7.10. Consents and Approvals........................................................ 48
7.11. Environmental Assessment...................................................... 48
7.12. Investment Canada Act......................................................... 48
7.13. Corporate Matters Pertaining to Company....................................... 49
7.14. Subsidiary Corporate Matters.................................................. 49
7.15. Lease on 31 Wellesley Property................................................ 49
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8. Conditions to Sellers' Obligations...................................................... 49
8.1. Truth of Representations and Warranties....................................... 49
8.2. Performance of Agreements..................................................... 50
8.3. Litigation.................................................................... 50
8.4. Proceedings................................................................... 50
8.5. Lease on 31 Wellesley Property................................................ 50
9. Indemnification Remedies................................................................ 50
9.1. Survival; Right to Indemnification Not Affected By Knowledge.................. 50
9.2. Indemnification and Payment of Damages by Sellers............................. 51
9.3. Indemnification and Payment of Damages by Purchaser........................... 52
9.4. Limitations on Amount......................................................... 52
9.5. Liability of Individual Sellers; Breaches by Individual Sellers............... 53
9.6. Further Limitations on Remedies............................................... 53
9.7. Procedures.................................................................... 54
9.8. Prevailing Party to be Awarded Legal Fees..................................... 55
9.9. Offset........................................................................ 56
9.10. Agreements Concerning Pending Litigation.................................... 56
10. Fraud Claim............................................................................ 59
11. Miscellaneous.......................................................................... 60
11.1. Termination.................................................................. 60
11.2. Expenses..................................................................... 61
11.3. Successors and Assigns....................................................... 61
11.4. Severability................................................................. 61
11.5. Counterparts................................................................. 61
11.6. Descriptive Headings; Interpretation......................................... 62
11.7. Governing Laws............................................................... 62
11.8. Consent to Jurisdiction and Service of Process............................... 62
11.9. Waiver of Jury Trial......................................................... 62
11.10. Notices..................................................................... 63
11.11. Sellers' Representative..................................................... 64
11.12. Entire Agreement............................................................ 64
11.13. Currency.................................................................... 65
11.14. English Language............................................................ 65
11.15. Announcements............................................................... 65
11.16. Time of the Essence......................................................... 65
11.17. Waiver...................................................................... 65
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SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made as of June
30, 1997, by and between Career Education Corporation, a Delaware corporation
("PURCHASER"), and ▇▇▇▇ ▇▇▇▇▇, ▇▇. ("▇▇▇▇▇"), ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"),
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ("▇▇▇▇"), and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("GROSS"). C. Stein,
Rutstein, ▇. ▇▇▇▇, and ▇▇▇▇▇ are referred herein collectively as "SELLERS."
Except as otherwise indicated, capitalized terms used herein are defined in
Section 1.
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BACKGROUND
Sellers are the registered and beneficial owners of one-hundred
percent (100%) of the issued and outstanding shares (the "SHARES") in the
capital of International Academy of Merchandising & Design (Canada) Ltd., an
Ontario corporation (the "COMPANY"). The Company owns and operates a private-
vocational school in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, and through its wholly-owned subsidiary,
Academie Internationale du Design Inc. (a/k/a International Academy of Design
Inc.) a Quebec corporation ("IAMD-MONTREAL") owns and operates a private
vocational school in Montreal, Quebec, both of which provide certificate
granting programs in commercial design and merchandising (collectively, the
"SCHOOLS"). IAMD-Montreal is sometimes referred to as the "SUBSIDIARY."
Sellers desire to sell, and Purchaser desires to purchase, the Shares, for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
1. CERTAIN DEFINITIONS.
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For the purposes of this Agreement, the following terms have the
meanings set forth below:
"ACCREDITING BODY" means any Person, entity or organization, whether
governmental, government chartered, private or quasi-private, which engages
in granting or withholding Accreditation for the Schools, in accordance
with standards relating to the performance, operation, financial condition
and/or academic standards relating to the Schools, including, without
limitation, the Superintendent and the Private Vocational School Review
Board under the Private Vocational Schools Act (Ontario) and the
regulations thereunder, and the Minister of Education (Quebec) under an Act
respecting private education (Quebec) and the regulations thereunder.
"ACCREDITATION" means any license, permit, registration, authorization
or similar approval granted to or in respect of the Schools by an
Accrediting Body.
"ADJUSTED BALANCE SHEET" shall have the meaning ascribed to such term
in Section 2.3(b).
"AFFILIATE" means, with respect to any Person, any individual related
by blood or marriage to such Person or any Person controlling, controlled
by or under common control with such Person.
"AGREEMENT" shall have the meaning ascribed to such term in the
Preamble.
"AUDIT REPORT" shall have the meaning ascribed to such term in Section
2.3(b).
"BEST OF PURCHASER'S KNOWLEDGE" means the collective actual knowledge
of the executive officers of Purchaser holding offices of vice-president or
higher, following due inquiry of appropriate officers, employees and
consultants of Purchaser.
"BEST OF SELLERS' KNOWLEDGE" means the collective actual knowledge of
Sellers and the executive officers of the Company and the Subsidiary
holding offices of vice-president or higher, following due inquiry of
appropriate officers, employees and consultants of each such entity,
including without limitation, in the case of the Schools, ▇▇▇▇▇ ▇▇▇▇▇, the
president, the director of admissions (Montreal), the director of
admissions (Toronto) and the financial aid director (Toronto) and Financial
Aid Officer (Montreal).
"CERTIFICATE DEADLINE DATE" shall have the meaning ascribed to such
term in Section 2.5(b).
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"CLOSING" shall have the meaning ascribed to such term in Section 2.4.
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"CLOSING BALANCE SHEET" shall have the meaning ascribed to such term
in Section 3.1(j).
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"CLOSING DATE" shall mean the date of the Closing.
"CLOSING PAYMENT" shall have the meaning ascribed to such term in
Section 2.2(a).
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"COMPANY" shall have the meaning ascribed to such term in the
background section of this Agreement.
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"COMPLIANCE REPORTS" shall have the meaning ascribed to such term in
Section 4.9.
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"CONFIDENTIAL INFORMATION" shall have the meaning ascribed to such
term in Section 6.1(a).
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"CURRICULA" means copyrighted and proprietary uncopyrighted materials
used in any courses offered at either of the Schools.
"DAMAGES" shall have the meaning ascribed to such term in Section 9.2.
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"DEFICIENCY" shall have the meaning ascribed to such term in Section
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2.3(a).
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"EMPLOYEE BENEFIT PLAN" means any: (a) stock option plan, stock
purchase plan, incentive plan, deferred compensation plan, profit-sharing
plan and other similar benefit, plan or arrangement; and (b) insurance
plan, health plan, welfare plan, disability plan, pension plan, retirement
plan, travel plan, hospitalization plan, medical plan, dental plan, legal
plan, counseling plan, eye care plan and other similar benefit, plan or
arrangement.
"ENCUMBRANCE" means any charge, claim, community property interest,
condition, equitable interest, hypothecation, lien, mortgage, option,
pledge, security interest, servitude, right of first refusal, or
restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of
ownership, but in the case of leased property does not include the rights
of the lessors thereof under the respective leases therefor.
"ENFORCEABLE IN ACCORDANCE WITH ITS TERMS" or similar language shall
be deemed to mean enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
"ENVIRONMENTAL LAW" means any Legal Requirement pertaining to any
Hazardous Substance or otherwise pertaining to the environment or
protection of any natural resources, including, without limitation, air,
soil or water.
"ESCROW" shall have the meaning ascribed to such term in Section
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2.2(b).
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"ESCROW AGREEMENT" shall have the meaning ascribed to such term in
Section 2.2(b).
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"EXCESS" shall have the meaning ascribed to such term in Section
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2.3(a).
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"FACILITY" means any real property now or previously owned, leased or
operated by the Company or the Subsidiary, including without limitation the
Leased Facilities.
"FINAL BALANCE SHEET" means the balance sheet which under Section
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2.3(B) is deemed to be the "FINAL BALANCE SHEET."
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"FINANCIAL STATEMENTS" means (i) the audited balance sheets and the
related statements of income and changes in financial position of the
Company as at and for the fiscal years ended August 31, 1994, 1995 and
1996, and (ii) the unaudited consolidated balance sheet and the related
statement of income of the Company (the "INTERIM FINANCIAL STATEMENTS")
prepared by the Company on behalf of the Sellers as at and for the nine (9)
month period ended May 31, 1997 (the "INTERIM BALANCE SHEET DATE").
"GAAP" means generally accepted accounting principles from time to
time approved by the Canadian Institute of Chartered Accountants (or any
successor authority) that are applicable as of the date of determination,
all as consistently applied in the preparation of the Financial Statements.
"GOVERNMENTAL BODY" means any (a) federal, state, provincial, local,
municipal, foreign, or other government; (b) governmental or quasi-
governmental authority of any nature (including any governmental agency,
branch, bureau, department, official, or entity and any court or other
tribunal); and (c) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"GROSS INDEBTEDNESS" shall have the meaning ascribed to such term in
Section 3.1(i).
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"HAZARDOUS SUBSTANCE" shall include any substance included within the
definitions of "hazardous substances," "hazardous materials," "toxic
substances," "waste" or similar terms in any applicable federal, state,
provincial, or local statute, ordinance, rule or regulation relating to
environmental protection, remediation or liability, including clean air,
clean water, waste disposal and hazardous substance transportation or
disposal, including, without limitation, petroleum, asbestos,
polychlorinated biphenyls, flammable explosives and radioactive materials.
"HOLDBACK" shall have the meaning ascribed to such term in Section
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2.2(b).
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"IAMD" shall have the meaning ascribed to such term in Section 7.13.
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"IAMD-MONTREAL" shall have the meaning ascribed to such term in the
background section of this Agreement.
"INCOME TAX ACT (CANADA)" means, collectively, the Income Tax Act,
R.S.C. 1985 (5th Supp.), the Income Tax Application Rules, 1971, S.C. 1970-
71-72 c.63 and the Income Tax Regulations, as amended to date, and where a
reference is made to a provision of the Income Tax Act (Canada), it shall
be deemed to include where applicable, the Income Tax Application Rules,
the Income Tax Regulations, any Notice of Ways and Means Motion or ▇▇▇▇
tabled to date in the House of Commons to the extent that it results in a
subsequent amendment to the Income Tax Act (Canada), the Income Tax
Application Rules or the Income Tax Regulations, or any press release or
publicly disseminated statement made to date by the Minster of Finance,
pertaining to an intended amendment to the Income Tax Act, the Income Tax
Application Rules or the Income Tax Regulations", to the extent that such
amendment is subsequently enacted.
"INDEMNIFICATION THRESHOLD" shall have the meaning ascribed to such
term in Section 9.6(a).
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"INDEPENDENT AUDITOR" shall have the meaning ascribed to such term in
Section 2.3(b).
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"INITIAL PUBLIC OFFERING" means an initial public offering and sale
for cash by Purchaser of its common stock pursuant to a "firm commitment"
underwriting agreement and a registration statement declared effective by
the Securities and Exchange Commission under the United States Securities
Act of 1933, as amended (the "SECURITIES ACT"); provided, that the term
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Initial Public Offering shall not include the registration of an offer and
sale of the common stock of Purchaser (i) to the employees of Purchaser or
its subsidiaries or other persons providing services to Purchaser or its
subsidiaries pursuant to any Plan registered on Form S-8 or a successor
form, or (ii) relating to a merger, acquisition or other transaction of the
type described in Rule 145 of the Securities Act or any successor rule
registered on Form S-4 or a successor form.
"INTELLECTUAL PROPERTY" means the patents, trademarks, logos,
tradenames (including, without limitation, the Company's name, the
Subsidiary's name, and each Schools' name), servicemarks, copyrights, know-
how, and trade secrets owned by the Company or the Subsidiary or any other
Person and used in connection with the operation of the Schools.
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"INVESTMENT" as applied to any Person means (i) any direct or indirect
ownership by such Person of any notes, obligations, instruments, stock,
securities or other ownership interest of any other Person, and (ii) any
capital contribution by such Person to any other Person.
"LEASES" shall have the meaning ascribed to such term in Section
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4.11(b).
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"LEASED FACILITIES" shall have the meaning ascribed to such term in
Section 4.11(b).
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"LEGAL REQUIREMENT" means any foreign, federal, state, provincial,
local, municipal or other constitution, law, statute, regulation, rule,
ordinance, order, administrative order, principle of common law, or treaty
to which Sellers, the Company, the Subsidiary or Purchaser are subject, as
applicable.
"LETTERS OF CREDIT" shall have the meaning ascribed to such term in
Section 2.2(c).
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"LICENSES AND PERMITS" shall have the meaning ascribed to such term in
Section 4.8.
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"MATERIAL MISCELLANEOUS CONTRACTS" shall have the meaning ascribed to
such term in Section 4.12.
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"ME" means the Quebec Minister of Education and any successor
administering student financial assistance under An Act Respecting
Financial Assistance for Students (Quebec) and regulations thereunder, as
amended.
"MET" means the Ontario Ministry of Education and Training and any
successor administering student financial assistance under (a) the Ministry
of Colleges and Universities Act (Ontario), Regulation 774, as amended; and
(b) the Canada Student Financial Assistance Act and the regulations
thereunder and the Canada Students Loans Act and the regulations
thereunder.
"NET WORTH" shall have the meaning ascribed to such term in Section
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2.3(a).
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"NONCOMPETITION AGREEMENTS" shall have the meaning ascribed to such
term in Section 3.1(c).
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"NONCOMPETITION PAYMENTS" shall have the meaning ascribed to such term
in Section 3.1(c).
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"NON-RESIDENT SELLERS" shall have the meaning ascribed to such term in
Section 2.5.
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"PERMITTED ENCUMBRANCES" shall have the meaning ascribed to such term
in Section 4.11(d).
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"PERSON" means any individual, general or limited partnership,
corporation (including any non-profit corporation), limited liability
company, joint stock company, joint venture, trust, association,
unincorporated organization, labor union, Governmental Body, Accrediting
Body or other similar entity.
"PLANS" shall have the meaning ascribed to such term in Section 4.21.
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"POLICY GUIDELINES" shall have the meaning ascribed to such term in
Section 4.9.
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"PRE-CLOSING FINANCIAL AID IRREGULARITIES" shall have the meaning
ascribed to such term in Section 9.2(d).
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"PROCEEDING" means any action, claim, arbitration, audit, hearing,
investigation, inquiry, litigation, suit (whether civil, criminal,
administrative, investigative, or informal) or other proceeding commenced,
brought, conducted, or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"PURCHASE PRICE" shall have the meaning ascribed to such term in
Section 2.2.
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"PURCHASER" shall have the meaning ascribed to such term in the
preamble to this Agreement.
"PURCHASER'S ACCOUNTANT" shall have the meaning ascribed to such term
in Section 2.3(b).
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"SCHOOLS" shall have the meaning ascribed to such term in the
background section to this Agreement.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended, or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
"SELLERS" shall have the meaning ascribed to such term in the preamble
to this Agreement.
"SELLER NOTES" shall have the meaning ascribed to such term in Section
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2.2(c).
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"SELLERS' RELEASE" shall have the meaning ascribed to such term in
Section 3.1(b).
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"SHARES" shall have the meaning ascribed to such term in the
background section to this Agreement.
"STOCK PURCHASE AGREEMENT" means the stock purchase agreement of even
date herewith by and among IAMD Acquisition I, Ltd., a Delaware corporation
and the stockholders of IAMD Limited, an Illinois corporation, executed
substantially contemporaneously with the execution of this Agreement.
"SUBSIDIARY" shall have the meaning ascribed to such term in the
background section to this Agreement.
"TAX RETURNS" means all reports, elections, tax returns and tax forms
required to be filed by the Company, the Subsidiary and/or any of their
business activities under the provisions of any applicable Legal
Requirement and any tax forms required to be filed by the Company, the
Subsidiary and/or any of their business activities, whether in connection
with a tax return or not, under the provisions of any applicable Legal
Requirement.
"TAXES" means all taxes payable by the Company, the Subsidiary and/or
any of their business activities under the Income Tax Act (Canada) and all
taxes, levies or other like assessments, charges or fees, including,
without limitation income, gross receipts, excise, goods and services,
value added, transfer, capital, property (including, without limitation,
any special assessments), sales, license, payroll and franchise or other
taxes and import and customs duties, imposed by any Governmental Body on
the Company and/or the Subsidiary and/or any of their business activities;
and such term shall include any interest, penalties, fines or additions or
other amounts payable in connection with any Taxes.
"THRESHOLD AMOUNT" shall have the meaning ascribed to such term in
Section 2.3(a).
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"TRADENAMES" shall have the meaning ascribed to such term in Section
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4.13(a).
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Immediately following the signature pages of this Agreement is an
index of the Exhibits and Schedules attached hereto.
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2. SALE AND TRANSFER OF SHARES; ASSETS AND LIABILITIES OF THE COMPANY AT
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CLOSING.
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2.1. PURCHASE AND SALE OF SHARES.
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Subject to the terms and conditions of this Agreement, Sellers hereby
agree to sell, transfer, assign, convey and deliver the Shares to Purchaser, and
Purchaser hereby agrees to purchase, acquire and accept the Shares from Sellers,
at the Closing.
2.2. PURCHASE PRICE; PAYMENT.
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In full consideration of the sale of the Shares by Sellers to
Purchaser, and the other agreements of the parties hereunder, and subject to
adjustment following the Closing in accordance with Section 2.3, the aggregate
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purchase price (the "PURCHASE PRICE") for the Shares is $6,500,000, which,
subject to Section 2.5, plus the sum of $2,000,000 hereinafter in this section
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provided for shall be payable as follows:
(a) $3,826,625 (the "CLOSING PAYMENT"), $22,000 of which shall be
delivered by Purchaser to the Company on behalf of Sellers as payment
on account of the $30,000 (Cdn) owed by them for the purchase of the
▇▇▇▇▇▇▇▇ Claim (as defined in Section 10) and $3,804,625 of which
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shall be delivered to Sellers in accordance with Schedule 2.2 by wire
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transfer of immediately available funds at the Closing;
(b) $2,123,375 (the "HOLDBACK") which amount shall be deposited
in immediately available funds into an escrow account with Chicago
Title & Trust Co. (the "ESCROW") established pursuant and subject to
the terms of the escrow agreement (the "ESCROW AGREEMENT") in
substantially the form of Exhibit A attached hereto, and which amount,
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subject to reduction in accordance with Sections 2.3 and 2.5, and the
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offset pursuant to Section 9.9 of this Agreement, shall be disbursed
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to Sellers in accordance with the Escrow Agreement; and
(c) $2,550,000, which amount shall be evidenced by, and payable
in accordance with, Purchaser's notes made in favor of Sellers (the
"SELLER NOTES") in substantially the form of Exhibit B attached hereto
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and in accordance with Schedule 2.2 attached hereto, which Seller
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Notes shall bear interest (before default) at the rate of seven
percent (7.0%) per annum payable quarterly in arrears, and after
default at the rate of nine percent (9.0%) per annum and subject to
the accelerations therein provided, shall be due and payable in full
on the fourth anniversary of the Closing Date. The Seller Notes shall
be delivered simultaneously with the Closing Payment. The Seller Notes
shall be secured by letters of credit, in an aggregate amount equal to
the amount of the Seller Notes and four (4) months interest
thereunder, issued by LaSalle National Bank (collectively the "LETTERS
OF CREDIT") in substantially the form of Exhibit C attached hereto,
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which Letters of Credit shall be
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delivered to Sellers at the Closing. The rights of Sellers to payment
pursuant to the Seller Notes shall be subject to Purchaser's offset
rights as provided in Section 9.9 of this Agreement.
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In addition to the Purchase Price, Purchaser shall pay to Sellers the
Noncompetition Payments in the aggregate amount of $2,000,000, as provided for
in the Noncompetition Agreements, in accordance with Schedule 3.1(c) hereto,
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which Noncompetition Payments shall be made simultaneously with the Closing
Payment.
2.3. COMPANY ASSETS AND LIABILITIES; PURCHASE PRICE ADJUSTMENT.
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(a) Sellers agree that the consolidated net worth of the Company
and the Subsidiary at and as of Closing as calculated in accordance
with GAAP (the "NET WORTH") shall not be less than $400,000 (the
"THRESHOLD AMOUNT"). The amount of the Net Worth set forth in the
Final Balance Sheet shall be deemed to be the Net Worth for the
purposes of this Section 2.3(a). If the Final Balance Sheet sets forth
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Net Worth of less than the Threshold Amount, the amount of that
difference shall be the "DEFICIENCY" and the Holdback (and, as a
result thereof, the Purchase Price) shall be reduced by an amount
equal to the Deficiency. If, however, the Final Balance Sheet sets
forth Net Worth of more than the Threshold Amount, the amount of that
difference shall be the "EXCESS". The Excess, if any, shall, subject
to any rights of offset, be promptly remitted to Sellers in accordance
with Schedule 3.1(c).
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(b) Purchaser shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, L.L.P. (the
"PURCHASER'S ACCOUNTANT") to complete an audit of the Closing Balance
Sheet delivered by Sellers pursuant to Section 3.1(j), and to deliver
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to Purchaser the written report (the "AUDIT REPORT") of Purchaser's
Accountant with respect to such audit, as soon as possible following
the Closing and in any event not later than forty-five (45) days after
the Closing Date. Such Audit Report shall state the adjustments, if
any, to such Closing Balance Sheet which in the opinion of Purchaser's
Accountant would be necessary to be made so that with such adjustments
such Closing Balance Sheet would accurately set forth the Net Worth,
and if any such adjustments are so stated shall contain or be
accompanied by an adjusted consolidated balance sheet (the "ADJUSTED
BALANCE SHEET") of the Company and the Subsidiary reflecting such
adjustments. Purchaser shall deliver to Sellers a copy of such Audit
Report together with a copy of the Adjusted Balance Sheet, if any,
forthwith after Purchaser's receipt of same and in any event within
such forty-five (45) day period. Upon Sellers' request, Purchaser
shall cause the Purchaser's Accountant to provide to Sellers or their
representative access to the working papers of Purchaser's Accountant
with respect to such Audit Report, and the Sellers or their
representative shall be entitled to make copies thereof. If there is
an Adjusted Balance Sheet, then such Adjusted Balance Sheet shall be
-10-
deemed to be the "FINAL BALANCE SHEET" unless the Sellers object in
writing to such deeming within fifteen (15) days after their receipt
of the Adjusted Balance Sheet. If there is such an objection by
Sellers and the disputes between the Sellers and the Purchaser in that
regard are not resolved to the satisfaction of the Sellers within
fifteen (15) days after the date upon which Purchaser receives such
written objection of the Sellers, then another nationally recognized
firm of chartered accountants not otherwise engaged by Sellers or
Purchaser (or their respective Affiliates) mutually selected by
Sellers and Purchaser or appointed by a court of competent
jurisdiction upon application therefor (the "INDEPENDENT AUDITOR")
shall review the Closing Balance Sheet delivered by Sellers pursuant
to Section 3.1(j), the Adjusted Balance Sheet, the said Audit Report
--------------
of the Purchaser's Accountants and all related working papers of the
Purchaser's Accountant, and if requested by the Sellers to do so shall
make such other examinations and investigations as the Independent
Auditor considers to be necessary in order to form an opinion as to
the Net Worth. If requested by the Sellers or the Purchaser on written
notice to the other of them, the Independent Auditor shall consider
submissions by the parties in accordance with rules and procedures
established by the Independent Auditor in that regard. The review of
the Independent Auditor shall be completed as soon as is practicable.
If the Independent Auditor shall be of the view that the Adjusted
Balance Sheet does not correctly set forth the Net Worth, then the
Independent Auditor shall prepare and deliver to the parties a fresh
consolidated balance sheet of the Company and the Subsidiary which in
the view of the Independent Auditor correctly sets forth the Net Worth
and such fresh balance sheet shall thereupon be deemed to be the
"FINAL BALANCE SHEET." The Final Balance Sheet howsoever deemed shall
be final and binding upon all parties. The costs of the engagement of
the Independent Auditor shall be borne by the Sellers unless the
Independent Auditor's determination results in an adjustment in
Sellers' favor of at least $100,000, in which event the costs of the
engagement of the Independent Auditor shall be borne by the Purchaser.
If an Adjusted Balance Sheet is not delivered to the Sellers within
forty-five (45) days next following the Closing Date or the Audit
Report of the Purchaser's Accountant is such that no Adjusted Balance
Sheet is prepared, then the Closing Balance Sheet delivered by Sellers
pursuant to Section 3.1(j) hereof shall be deemed to be the "FINAL
--------------
BALANCE SHEET." Forthwith after a balance sheet is deemed to be the
Final Balance Sheet, the parties shall in writing direct the Escrow
Agent under the Escrow Agreement to disburse the $500,000 plus accrued
interest thereon in accordance with their respective entitlements
thereto (which entitlements shall be set forth in such direction);
provided, however, if the Purchaser claims an offset against such
amount pursuant to Section 9.9(b) such direction shall set forth the
--------------
amount claimed as such offset.
-11-
Notwithstanding anything contained in this Agreement to the contrary,
Purchaser shall not be required to pay any portion of the Holdback (excluding
however that portion of the Holdback relating to the tax withholding pursuant to
Section 116 of the Income Act (Canada)) until any and all disputes pursuant to
-----------
this Section 2.3 are resolved. Subject to Section 2.3 with respect to the costs
----------- -----------
of engagement of the Independent Auditor, each party hereto shall bear its own
costs and expenses, including attorneys' fees, incurred in connection with any
dispute under this Section 2.3.
-----------
2.4. CLOSING.
-------
The parties hereto shall close the purchase and sale of the Shares and
the consummation of the other actions contemplated by this Agreement to occur in
connection therewith at the closing (the "CLOSING"), which shall take place at
the offices of Purchaser's counsel, Goldberg, Kohn, Bell, Black, ▇▇▇▇▇▇▇▇▇▇ &
Moritz, Ltd., ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on
June 30, 1997, or such other date to which the parties hereto shall mutually
agree in writing.
2.5. SECTION 116 CERTIFICATES.
------------------------
With the exception of Gross, each of the other Sellers (the "NON-
RESIDENT SELLERS") shall use all reasonable efforts to deliver to Purchaser, on
the day prior to the Closing Date, the certificates required pursuant to (S) 116
of the Income Tax Act (Canada) to permit Purchaser to pay the Purchase Price
without any obligations pursuant to the Income Tax Act (Canada) to withhold or
remit any portion thereof or any liability for failing to do so, failing which:
(a) each of the Non-Resident Sellers shall continue to use all
reasonable efforts to obtain the certificates required pursuant to (S)
116 of the Income Tax Act (Canada);
(b) if certificates required pursuant to (S) 116 of the Income
Tax Act (Canada), in form and substance satisfactory to Purchaser,
acting reasonably, are not received by Purchaser at or before 5:00
p.m. (Toronto time) on the 28th day after the last day of the calendar
month in which the Closing occurs (the "CERTIFICATE DEADLINE DATE")
and if there is no Final Balance Sheet determined in accordance with
Section 2.3 by such time and date, Purchaser shall following the
-----------
Certificate Deadline Date remit to Revenue Canada the amount required
pursuant to (S) 116 of the Income Tax Act (Canada) in respect of the
Shares and the payment to Revenue Canada of such amount shall be
credited towards, and shall be deemed to have been paid to each of the
Non-Resident Sellers in partial satisfaction of, the Holdback;
provided that if the certificates required pursuant to (S) 116 of the
Income Tax Act (Canada) are received by Purchaser after Closing but
before the Certificate Deadline Date, Purchaser shall pay the Holdback
to each of the Non-Resident Sellers in
-12-
accordance with Section 2.2(b) without any deduction for withholding tax
--------------
under (S) 116 of the Income Tax Act (Canada); and
(c) if the Final Balance Sheet has been determined in accordance
with Section 2.3 at or before 5:00 p.m. (Toronto time) on the
-----------
Certificate Deadline Date and certificates required pursuant to (S)
116 of the Income Tax Act (Canada), in form and substance satisfactory
to Purchaser, acting reasonably, are not received by Purchaser by such
time and date, Purchaser shall pay each of the Non-Resident Sellers
the amount of the Holdback less the amount required pursuant to (S)
116 of the Income Tax Act (Canada) to be remitted to Revenue Canada in
respect of the Shares, and Purchaser shall, following the Certificate
Deadline Date, remit to Revenue Canada the amount required pursuant to
(S) 116 of the Income Tax Act (Canada) in respect of the Shares and
the payment to Revenue Canada of such amount shall be credited
towards, and shall be deemed to have been paid to each of the Non-
Resident Sellers in partial satisfaction of, the Holdback provided
that Purchaser shall have no further responsibilities to the Non-
Resident Sellers in connection with such payment to Revenue Canada;
provided further that if the certificates required pursuant to (S) 116
of the Income Tax Act (Canada) are received by Purchaser after the
determination of the Final Closing Balance Sheet but before the
Certificate Deadline Date, Purchaser shall pay the balance of the
Holdback to each of the Non-Resident Sellers without any deduction for
withholding tax under (S) 116 of the Income Tax Act (Canada).
(d) if Revenue Canada should assess or threaten to assess
Purchaser for a liability pursuant to subsection 116(5) of the Income
-----------------
Tax Act (Canada) because the cost of the Shares to the Purchaser
exceeds the "certificate limit" (as defined in the Income Tax Act
(Canada)), such liability shall be considered a third party claim
against Purchaser subject to Section 9 hereof. However, for purposes
---------
of Section 9, the claim pursuant to this subparagraph shall be
---------
considered a breach of a covenant under Section 9.2(b) only in respect
--------------
of the Non-Resident Seller whose payment is the subject of the
liability assessed against Purchaser; such claim shall not be subject
to the limitation of Section 9.6(b).
--------------
3. CLOSING DELIVERIES.
------------------
3.1. DELIVERIES TO PURCHASER.
-----------------------
Sellers agree to deliver to Purchaser, at the Closing, each of the
following, each of which constitutes a condition to Purchaser's obligation to
consummate the purchase of the Shares:
-13-
(a) Certificates for Shares. Certificates representing the
-----------------------
Shares, duly endorsed (or accompanied by duly executed stock powers),
for transfer to Purchaser;
(b) Releases from Sellers. A release in substantially the form
---------------------
of Exhibit D, executed by Sellers (the "SELLERS' RELEASE");
---------
(c) Noncompetition Agreements. Noncompetition agreements in
-------------------------
substantially the form of Exhibit E, each executed by one or more of
---------
the Sellers, a applicable (collectively, the "NONCOMPETITION
AGREEMENTS"), providing for the payments to Sellers in the aggregate
amount of $2,000,000 in accordance with Schedule 3.1(c) attached
---------------
hereto (the "NONCOMPETITION PAYMENTS"), in consideration for the
Sellers' performance of the covenants and obligations set forth in
their respective Noncompetition Agreements, which Noncompetition
Payments shall be paid to Sellers; subject to Section 2.5 and the
-----------
Escrow Agreement, simultaneously with disbursement of the Closing
Payment pursuant to Section 2.2(a) in accordance with the terms and
--------------
conditions of the Noncompetition Agreements;
(d) Escrow Agreement. The Escrow Agreement, executed by the
----------------
Purchaser, Sellers and the relevant escrow agent thereunder;
(e) Secretary's Certificates for the Company and the Subsidiary.
-----------------------------------------------------------
A certificate, signed by the secretary or an assistant secretary of
the Company, certifying the articles of incorporation and bylaws of
the Company, appropriate authorizing resolutions of the Company's
Board of Directors, the incumbency of the Company's directors and
officers, and the status or compliance of the Company in the Provinces
of Ontario and Quebec, and, as necessary, wherever else qualified to
conduct its business, and a certificate for the Subsidiary, signed by
the secretary or an assistant secretary of the Subsidiary, certifying
the articles of incorporation and bylaws of the Subsidiary, the
incumbency of the Subsidiary's directors and officers, and the status
or compliance of the Subsidiary in the Province of Quebec, and as
necessary, wherever else qualified to conduct its business;
(f) Closing Certificate. A certificate executed by Sellers
-------------------
satisfying the requirements of Sections 7.4, 7.5 and 7.6 hereof;
------------ --- ---
(g) Legal Opinion. Legal opinion of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ &
-------------
Vineberg and ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ in form satisfactory to Purchaser,
addressed to Purchaser and Purchaser's lenders;
(h) Consents. Evidence satisfactory to Purchaser's counsel that
--------
each consent of a third party listed in Schedule 3.1(h) attached
---------------
hereto, which consents are required by Purchaser to be obtained by
Sellers prior to the
-14-
Closing, have been obtained and remain in full force and effect,
unless the obligation to obtain such consent has been specifically
waived in writing by Purchaser;
(i) Evidence of Gross Indebtedness. Evidence of the amount of
------------------------------
the Company's indebtedness to Gross satisfactory to Purchaser (the
"GROSS INDEBTEDNESS")
(j) Closing Financial Information. An estimated consolidated
-----------------------------
balance sheet of the Company and the Subsidiary calculated as of 5:00
p.m. Toronto time on the business day immediately preceding the
Closing Date prepared as described in Section 2.3(a), a copy of which
--------------
shall be attached hereto as Schedule 3.1(j) (the "CLOSING BALANCE
---------------
SHEET"), accompanied by schedules in reasonable detail showing cash
balances in all bank accounts of the Company and each Subsidiary, and
all of their respective outstanding accounts payable, together with a
calculation of estimated Net Worth;
(k) Consent and Estoppel Certificates. Except to the extent
---------------------------------
waived in writing by Purchaser, Consent and estoppel certificates from
the landlords of the Leased Facilities, certifying certain factual
matters relating to the Leases, including without limitation
certification that there are no defaults under the Leases and the
amounts of security deposits under the Leases, consenting to the grant
of security interests in the Leases to Purchaser's senior secured
creditor, and consenting to the transfer of the Shares to the
Purchaser, in form and substance reasonably acceptable to Purchaser
and its lenders;
(l) Resignations. A resignation by each of the Sellers from
------------
their positions as directors and officers of the Company and, where
applicable, the Subsidiary, which resignations shall become effective
simultaneously with the Closing, and acknowledgment that their
respective employment agreements, if any, have been terminated without
any further obligation due from the Company or the Subsidiary or the
Purchaser;
(m) Bank Accounts. A list of all operating and other bank
-------------
accounts of the Company and the Subsidiary, together with
documentation of the removal of all directors and officers resigning
pursuant to Section 3.1(l) as signatories for such accounts;
--------------
(n) Certificates. Such tax certificates as required pursuant to
------------
Section 2.5, hereof; and
-----------
(o) Payment for ▇▇▇▇▇▇▇▇ Claim. Payment of the $30,000 (Cdn) for
--------------------------
the ▇▇▇▇▇▇▇▇ Claim described in Section 10 hereof; and
----------
(p) Other Documents. Such other documents relating to the
---------------
transactions contemplated by this Agreement as Purchaser or its
counsel may
-15-
reasonably request, including, without limitation, to the extent not
waived in writing by the Purchaser, documents specified as Sellers'
closing deliveries on the Closing Checklist in the form of Exhibit F
---------
attached hereto.
3.2. CLOSING DELIVERIES TO SELLERS.
-----------------------------
Purchaser agrees to deliver to Sellers at the Closing, each of the
following, each of which constitutes a condition to Sellers' obligations to
consummate the sale of the Shares:
(a) Closing Payment. The Closing Payment required by Section
--------------- -------
2.2(a) by wire transfer of immediately available funds;
------
(b) Seller Notes. The Seller Notes, executed by Purchaser;
------------
(c) Letters of Credit. The Letters of Credit, executed by the
-----------------
issuer thereof;
(d) Noncompetition Agreements. The Noncompetition Agreements,
-------------------------
executed by Purchaser;
(e) Escrow Agreement. The Escrow Agreement, executed by
----------------
Purchaser and the relevant escrow agent thereunder;
(f) Termination of Guarantees. Evidence of the termination or
-------------------------
release of the guarantees of Sellers described on Schedule 3.2(f)
---------------
attached hereto, or, to the extent any such termination or release
cannot be obtained prior to the Closing, delivery by Purchaser of an
indemnification of the applicable Seller or Sellers' obligations
thereunder, in either case in form and substance reasonably
satisfactory to Sellers;
(g) Secretary's Certificate for Purchaser. A certificate, signed
-------------------------------------
by the secretary or an assistant secretary of Purchaser, certifying
the articles of incorporation and bylaws of Purchaser, appropriate
authorizing resolutions of Purchaser's Board of Directors, the
incumbency of Purchaser's officers executing this Agreement and the
documents delivered in connection with the Closing, and the good
standing of Purchaser in its state of incorporation and the State of
Illinois;
(h) Closing Certificate. A certificate executed by Purchaser
-------------------
satisfying the requirements of Sections 8.1 and 8.2 hereof;
------------ ---
(i) Legal Opinion. A legal opinion of counsel for Purchaser,
-------------
Goldberg, Kohn, Bell, Black, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Ltd., in
substantially the form of Exhibit G attached hereto, addressed to
---------
Sellers; and
-16-
(j) Other Documents. Such other documents relating to the
---------------
transactions contemplated by this Agreement as Sellers or their
counsel may reasonably request, including, without limitation,
documents specified as Purchaser's closing deliveries on the Closing
Checklist.
3.3. OTHER CLOSING DELIVERIES.
------------------------
(a) Delivery into Escrow. Purchaser agrees to deposit into the
--------------------
Escrow (by wire transfer of immediately available funds), at Closing,
$3,123,375 which amounts shall be disbursed in accordance with Section
-------
2.2(b).
------
(b) Payment to Gross. Purchaser agrees to repay in full on
----------------
behalf of the Company to Gross (by wire transfer of immediately
available funds), at Closing the Gross Indebtedness.
(c) Indemnification for ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Guaranty. Purchaser
------------------------------------------------
hereby agrees to indemnify and hold Sellers harmless from and against
any and all out-of-pocket costs incurred by them arising under
Sellers' Guaranty contained in one of the various leases of the ▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ West property.
3.4. POST-CLOSING COVENANTS.
----------------------
(a) Further Assurances. On or after the Closing Date, and
------------------
without further consideration, Purchaser and Sellers shall, from time
to time at the request of any other party hereto, execute and deliver
to such other party further documents and instruments evidencing the
consummation of the transactions contemplated by this Agreement and/or
any of the obligations created hereby or pursuant hereto, as such
other party may reasonably require including, without limitation,
instruments of conveyance, assignment and transfer of the Shares. The
party requesting the execution and delivery of such further documents
and instruments shall pay the reasonable out of pocket costs and
expenses of all other parties hereto in connection therewith.
(b) Administration of the Company Prior to Disbursement of the
----------------------------------------------------------
Holdback; Cooperation of Parties. From and after the Closing Date and
--------------------------------
until payment in full of the Holdbacks, Purchaser, at Purchaser's sole
cost and expense, shall administer and operate the Company, the
Subsidiary and the Schools in material compliance with all Legal
Requirements and Accrediting Body requirements, and in accordance with
all permits, Accreditations, authorizations and agreements issued by
or entered into with any Governmental Body or any Accrediting Body
regulating or otherwise relating to the administration and operation
of the Company, the Subsidiary or the Schools. Subject to the terms
and provisions of this Agreement, Purchaser shall use its
-17-
commercially reasonable efforts in order to obtain any and all
approvals from the MET and the ME, any Accrediting Body and any other
Governmental Body that may be necessary or appropriate to vest in
Purchaser the right and authority to administer and operate the
Schools, and Purchaser and Sellers shall cooperate in order to obtain
such approvals.
(c) Access and Maintenance of Records. From and after the
---------------------------------
Closing Date, Purchaser shall afford to Sellers, their counsel,
accountants and other authorized representatives reasonable access to
each of the Company's, the Subsidiary's and the Schools' books and
records related to periods prior to the Closing Date during normal
business hours and upon reasonable notice from Sellers to Purchaser,
as reasonably required by Sellers in connection with (i) performance
by Sellers of any of Sellers' obligations (whether directly or by
virtue of their indemnification obligations) pursuant to this
Agreement, (ii) any claim, action, litigation, program review, audit
or other proceeding involving any one or more of the Sellers (other
than any such claim, action, litigation, program review, audit or
proceeding arising under this Agreement or in which Purchaser and/or
the Company and the Subsidiary, on one hand, and Sellers or any of
their Affiliates, on the other hand, are adverse parties and to which
a privilege would apply) and (iii) Sellers preparation of their tax
returns. Sellers, at Sellers' expense, may make copies of any such
records as may be necessary or appropriate for Sellers' use (subject
to Section 6.1 hereof) in connection with the foregoing. For a period
-----------
of seven (7) years from the Closing Date or until the expiration of
the record retention period under relevant Legal Requirements or
Accrediting Body requirements, if longer, Purchaser shall not destroy
or otherwise dispose of any books or records of the Company or the
Subsidiary related to periods prior to the Closing Date.
Notwithstanding the foregoing, Purchaser shall preserve and protect
all books, documents, papers, computer programs and records pertaining
in any manner to the administration by the Company or the Subsidiary
of student financial assistance programs with respect to the Schools
for at least the period of time specified under applicable Legal
Requirements.
4. REPRESENTATIONS AND WARRANTIES OF SELLERS.
-----------------------------------------
As a material inducement to Purchaser to enter into this Agreement and
to purchase the Shares, Sellers hereby represent and warrant as of the date
hereof (except where another particular date is specified, in which event
Sellers hereby represent as of such date) that:
4.1. INCORPORATION AND ORGANIZATION OF THE COMPANY AND THE SUBSIDIARY.
----------------------------------------------------------------
The Company is a corporation, duly incorporated, organized and
subsisting under the laws of the Province of Ontario. The Company is qualified
to do business as a corporation in the Province of Quebec, and all other
jurisdictions in which the nature of its
-18-
operations require it to register or otherwise qualify as an extra-provincial
corporation, except where failure to register or so qualify would not have a
material adverse effect on its business or operations. IAMD-Montreal is a
corporation duly incorporated, organized and subsisting under the laws of the
Province of Quebec. IAMD-Montreal is qualified to do business as an extra-
provincial corporation and in good standing in all other jurisdictions in which
the nature of its operations require it to so qualify, except where failure to
so qualify would not have a material adverse effect on its business or
operations. Each of the Company and the Subsidiary has all requisite power and
authority to own and operate its properties and assets, to carry on its business
as now conducted, and to consummate the transactions contemplated hereby. The
Company and the Subsidiary are not, and for the past five (5) years have not
been, engaged in any business other than the operation of the Schools, and
activities directly related thereto. The copies of the Company's and the
Subsidiary's articles of incorporation and bylaws which have been furnished by
Sellers to Purchaser reflect all amendments made thereto at any time prior to
the date of this Agreement and are correct and complete. The failure of the
Company to be registered in Quebec did not and will not have a material adverse
effect on the Company, the subsequently organized Quebec Subsidiary, or the
Schools.
4.2. OWNERSHIP OF THE COMPANY, THE SUBSIDIARY AND THE SCHOOLS.
--------------------------------------------------------
(a) The Subsidiary is owned and operated by the Company directly,
and no other Person has any ownership interest in the Subsidiary. The
School in Toronto is owned directly by the Company and the School in
Montreal is owned directly by the Subsidiary, and no other Person has
any ownership interest in the Schools. No Person other than Purchaser
has any right, option, warrant, subscription or other arrangement to
purchase shares in the capital of the Company (or the Subsidiary) or
to otherwise acquire any other equity interest in the Company (or the
Subsidiary) or the Schools. The transfer by the Company of assets to
the Subsidiary was sufficient to transfer good and valid title to such
assets to the Subsidiary, free and clear of any Encumbrances.
(b) The Shares are owned by each Seller directly, and no other
Person has direct or indirect ownership interest in the Company and no
Person, other than the Purchaser, has any right, option, warrant,
subscription or other arrangement to purchase shares of capital stock
of the Company or to otherwise acquire any other equity interest in
the Company.
4.3. CAPACITY; AUTHORIZATION; BINDING EFFECT, ETC.
--------------------------------------------
Each Seller hereby represents and warrants that he or she individually
has the unrestricted and absolute power, legal capacity and authority to
execute, deliver and perform this Agreement and each other document being
executed in connection herewith to which he or she is a party. Such Seller
hereby further individually represents and warrants that this Agreement has
been, and each other document to be executed by such Seller in connection
herewith, as of the Closing, will have been, duly executed and delivered by
-19-
Sellers or such Seller, and (assuming the due authorization, execution and
delivery hereof and thereof by Purchaser and any other parties thereto), this
Agreement is, and each such other document or agreement will be, a valid and
binding obligation of such Seller, as the case may be, enforceable against him
or her in accordance with its terms.
4.4. NO CONFLICTS, ETC.
-----------------
(a) Except as set forth in Schedule 4.4, the execution, delivery
------------
and performance of this Agreement and each other document being
executed by Sellers or any of them in connection herewith, and the
consummation of the transactions contemplated hereby and thereby, do
not and will not: (a) contravene, conflict with, or result in a
violation of (i) any provision of the articles of incorporation or
bylaws of the Company or the Subsidiary; or (ii) any resolution
adopted by the board of directors or the shareholders of the Company
or the Subsidiary; (b) contravene, conflict with or violate any Legal
Requirement applicable to the Company, the Subsidiary or the Schools
or any of their respective assets or properties; (c) with or without
the giving of notice or the passage of time, or both, conflict with or
result in the breach or termination, of, or default under, any
provision of the articles of incorporation or bylaws of the Company or
the Subsidiary, or any material instrument, license, permit,
authorization, agreement or commitment to which the Company, the
Subsidiary or the Schools, are a party or by which any of their assets
or properties are bound; (d) constitute a violation of any order,
judgment or decree to which the Company, the Subsidiary, or the
Schools, are a party or by which any of their assets or properties is
bound; or (e) require any approval of, filing or registration with, or
consent from any Governmental Body or Accrediting Body that is
required to be obtained or made by the Company, the Subsidiary or the
Schools; (f) cause the Company or the Subsidiary to become subject to,
or liable for the payment of, any Taxes outside of the ordinary course
of business relating to periods prior to the Closing Date, or transfer
taxes under any state, province or local law attributable to purchase
of the Shares by Purchaser, except as result of the current taxation
year of the Company and the Subsidiary ending by virtue of the Closing
of the transactions contemplated hereby. Except as set forth on
Schedule 4.4, none of the Company, the Subsidiary, the Schools or any
------------
Seller is or will be required to give any notice or obtain any
consent, approval or other authorization from any Person in connection
with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereunder.
(b) The execution, delivery and performance of this Agreement and
each other document being executed by each Seller in connection
herewith, and the consummation of the transactions contemplated hereby
and thereby, do not and will not: (a) contravene, conflict with or
violate any Legal Requirement applicable to such Seller; (b) with or
without the giving of notice or the passage of time, or both, conflict
with or result in the breach or
-20-
termination, of, or default under, or any material instrument,
license, permit, authorization, agreement or commitment to which such
Seller is a party or by which any of his or her assets or properties
are bound; (c) constitute a violation of any order, judgment or decree
to which such Seller is a party or by which any of his or her assets
or properties is bound; or (d) require any approval of, filing or
registration with, or consent from any Governmental Body or
Accrediting Body that is required to be obtained or made by such
Seller. Except as set forth on Schedule 4.4, such Seller is not or
------------
will not be required to give any notice or obtain any consent,
approval or other authorization from any Person in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereunder by such Seller.
4.5. INVESTMENTS.
-----------
The Company has, and during the five (5) years prior to the date
hereof has had, no Investment, in any Person other than the Subsidiary. The
Subsidiary does not have, and during the five (5) years prior to the date hereof
has not had, any Investment in any other Person.
4.6. CAPITALIZATION.
--------------
The capitalization of the Company and the Subsidiary is as
follows:
(a) (i) The authorized equity securities of the Company consist
of an unlimited number of common shares, of which forty-three thousand
six hundred sixty seven (43,667) shares are issued and outstanding to
the Sellers as set forth on Schedule 4.6. Such issued and outstanding
------------
securities constitute the "SHARES". (ii) Sellers are, and at the
moment immediately prior to consummation of the Closing will be, the
record and beneficial owners and holders of the Shares, free and clear
of all Encumbrances.
(b) The authorized equity securities of IAMD-Montreal consist of
an unlimited number of Class A, Class B, Class C, Class D, Class E,
and Class F shares, of which one hundred (100) Class A shares and
Seven Thousand Two Hundred Forty One (7,241) Class E shares are issued
and outstanding to the Company. The Company is, and at the moment
immediately prior to consummation of the Closing will be, the record
and beneficial owner and holder of all such equity securities of IAMD-
Montreal, free and clear of all Encumbrances.
Except as set forth in Schedule 4.6, no legend or other reference to any
------------
purported Encumbrance appears upon any certificate representing equity
securities of the Company or the Subsidiary. All of the outstanding equity
securities of the Company and the Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in
Schedule 4.6, there are no agreements, (other
------------
-21-
than shareholders' agreements which will be terminated prior to, or in
connection with, the Closing), commitments (including without limitation any
options, warrants, rights or similar arrangements) or Plans relating to the
issuance, sale, or transfer of any equity securities or other securities of the
Company or the Subsidiary or providing for cash payments based upon the value of
any equity securities of the Company or the Subsidiary. None of the outstanding
equity securities or other securities of the Company or the Subsidiary was
issued in violation of the Securities Act, any Canadian securities legislation
or any other Legal Requirement. Neither the Company (except for its ownership of
the outstanding shares of the Subsidiary) nor any of the Subsidiary owns, or has
any agreement or commitment to acquire, any equity securities or other
securities of any Person, or any direct or indirect equity or ownership interest
in any other business.
4.7. BOOK AND RECORDS.
----------------
Except as set forth on Schedule 4.7:
------------
(a) The minute books, share record books, and other records of
the Company and the Subsidiary, all of which are being made available
to Purchaser, are complete and correct and have been maintained in
accordance with sound business practices, including the maintenance of
an adequate system of internal controls, except where failure to so
maintain such books and records would not have a material adverse
effect upon the Company or the Subsidiary.
(b) The minute books of the Company and the Subsidiary contain
accurate and complete records of all meetings held of, and corporate
action taken by, their respective shareholders, boards of directors,
and committees of their respective boards of directors, and no meeting
of any such shareholders, boards of directors, or committees has been
held for which minutes have not been prepared and are not contained in
such minute books, except where failure to so prepare and maintain
such minutes would not have a material adverse effect on the Company
or any of its Subsidiaries.
(c) The Company and the Subsidiary have maintained all of its
accounting books and records in accordance with applicable Legal
Requirements and GAAP, except where failure to so maintain such books
and records would not have a material adverse effect upon the Company
or the Subsidiary, and such books and records are true, correct and
complete in all material respects.
(d) At the Closing, all books and records described in this
Section 4.7 will be in the possession of the Company or the
-----------
Subsidiary, as applicable.
-22-
4.8. COMPLIANCE WITH LAWS; LICENSES AND PERMITS.
------------------------------------------
Except as set forth in Schedule 4.8(a) attached hereto, none of the
---------------
Company, the Subsidiary, or the Sellers is in violation of any Legal Requirement
which violation might reasonably be expected to have a material adverse effect
upon the financial condition, operating results, Accreditation or business of
the Company, or the Subsidiary or the Schools, and none of the Company, the
Subsidiary, or the Sellers has received notice of any such violation. None of
the Company, the Subsidiary, or the Sellers has received any notice of any
violations of the Occupational Health and Safety Act, as amended, or any other
occupational health or safety act or any similar Legal Requirement, relating to
the Company or the Subsidiary. The Company and the Subsidiary currently
maintain all licenses, Accreditations, certificates, permits, consents,
authorizations, and other governmental or regulatory approvals (the "LICENSES
AND PERMITS") necessary to conduct the business and operations of the Company
and the Subsidiary as presently being conducted, except where the failure to
maintain any such Licenses and Permits would not have a material adverse effect
on the operations or financial condition of the Company or the Subsidiary or the
Schools. Each of the Company and the Subsidiary has duly filed all reports and
returns required to be filed by it with all Governmental Bodies and the
Accrediting Body except where failure to file any such report or return would
not have a material adverse effect on the Company or its Subsidiary. No
application made by the Company or the Subsidiary for any Licenses and Permits
during the last five (5) years has been denied except for requests made to the
ME to introduce a new program, which requests were not granted, as listed on
Schedule 4.8(d) hereto. Schedule 4.8(b) attached hereto is a true, correct and
--------------- ---------------
complete list of all Licenses and Permits held by the Company and the
Subsidiary, and the Governmental Body or Accrediting Body granting each such
License and Permit. Except as set forth on Schedule 4.8(b), the Licenses and
---------------
Permits are in full force and effect, and no proceedings for the suspension or
cancellation of any of them is pending or, to the best of Sellers' knowledge,
threatened. Sellers have delivered to Purchaser copies of all such Licenses and
Permits. Except as set forth on Schedule 4.8(b), none of the Company or the
---------------
Subsidiary, or any Seller, has received notice that any of the Licenses and
Permits will not be renewed and to the best of Sellers' knowledge, there is no
basis for nonrenewal. Each of the Company and the Subsidiary has all
Accreditations from Accrediting Bodies and all surety bonds sufficient and in
effect which are required to conduct the business of the School operated by it,
as presently conducted. Except as set forth in Schedule 4.8(c) attached hereto,
---------------
none of the Company, or the Subsidiary, or any Seller, has received any notice,
not previously resolved in full without any material liability, with respect to
any alleged violation of the rules or regulations of the MET or ME or any
applicable Accrediting Body, in respect of the Schools, including sales and
marketing activities, or the terms of any program participation agreement to
which it is or was a party. Except as set forth on Schedule 4.8(c) attached
---------------
hereto, Sellers are not aware of any investigation, and/or review of the
Schools' student financial aid programs or any review of Accreditation of either
School by any Governmental Body or Accrediting Body.
-23-
4.9. RECRUITMENT; ADMISSIONS PROCEDURES; ATTENDANCE; FINANCIAL AID;
--------------------------------------------------------------
REPORTS.
-------
Schedule 4.9(a) attached hereto is a complete list of all policy
---------------
manuals and other statements of procedures or instruction of the Company or the
Subsidiary or of ME and MET in the possession of the Company or the Subsidiary
relating to (a) recruitment of students for the Schools, including procedures
for assisting in the application by prospective students for direct or indirect
provincial or federal financial assistance; (b) admissions procedures, including
any descriptions of procedures for insuring compliance with federal, provincial
or Accrediting Body requirements applicable to such procedures; (c) procedures
for encouraging and verifying attendance, minimum required attendance policies,
and other relevant criteria relating to course performance requirements and
completion; and (d) compliance with Legal Requirements relating to financial aid
programs (collectively, the "POLICY GUIDELINES"). Sellers have delivered to
Purchaser true, correct and complete copies of all Policy Guidelines. Except as
disclosed on Schedule 4.9(b) attached hereto or in any other schedule to this
---------------
Agreement, the operations of the Company and the Subsidiary have, in all
material respects, been conducted substantially in accordance with the Policy
Guidelines (as then in effect) and all relevant standards imposed by applicable
Accrediting Bodies, and other agencies administering provincial or federal
governmental financial assistance programs in which the Company or the
Subsidiary participate, and other applicable Legal Requirements. The Company
has submitted all reports, audits, and other information, whether periodic in
nature or pursuant to specific requests, for the Company, the Subsidiary and the
Schools ("COMPLIANCE REPORTS") to all agencies or other entities with which such
filings are required relating to its compliance with (i) applicable
Accreditation standards, and (ii) Legal Requirements governing programs pursuant
to which either of the Schools or its students receive student financial
assistance funding except where failure to submit such Compliance Reports would
not have a material adverse effect on the business or operations of the Company,
or the Subsidiary or the Schools. There are no articulation agreements between
the Schools and degree granting colleges and universities in effect and no such
agreements are necessary for the business or operations of the Company or the
Subsidiary. All forms and records of the Company and the Subsidiary have been
prepared, completed, maintained and filed in all material respects in accordance
with all applicable Legal Requirements, and are true and correct in all material
respects. All financial aid grants and loans, disbursements and record keeping
relating thereto have been completed in compliance with all federal and
provincial requirements, and there are no material deficiencies in respect
thereto. To the best of Sellers' knowledge and except as previously disclosed
in prior audits by MET or ME, no student at either of the Schools has been
funded prior to the date for which such student was eligible for funding, and
such student's records conform in form and substance to all relevant regulatory
requirements.
4.10. REGULATORY REQUIREMENTS.
-----------------------
The ME and the MET represent all Accrediting Bodies under which the
Schools are regulated or required to be regulated and there are no other
governmental,
-24-
regulatory or accrediting entities under which the Schools are regulated or
required to be regulated.
4.11. TITLE TO THE ASSETS.
-------------------
(a) Neither the Company nor the Subsidiary presently owns, or has
ever owned, any real property.
(b) Schedule 4.11(b) sets forth a list of the real properties
----------------
leased or otherwise used, operated or occupied by the Company or the
Subsidiary (the "LEASED FACILITIES"). The leases covering the Leased
Facilities (the "LEASES"), which are also described on Schedule
--------
4.11(b) are valid and in full force and effect and are enforceable in
-------
all material respects in accordance with their terms.
(c) All of the tangible assets and records relating to intangible
assets of the Company and the Subsidiary are or as of the Closing will
be delivered to Purchaser or located at the Leased Facilities. Except
as disclosed or summarized in Schedule 4.11(c), neither the Company
----------------
nor the Subsidiary is under any contractual or other legal obligation
or has entered into any commitment to make capital improvements or
alterations to the Leased Facilities. The Company and/or the
applicable Subsidiary and, to the best of Sellers' knowledge, the
landlords, are not in default under the Leases and, to the best of
Sellers' knowledge, no event, act or omission has occurred which (with
or without notice, the passage of time or the happening or occurrence
of any other event) would result in a default thereunder. The Company
and/or the applicable Subsidiary enjoys peaceful and undisturbed
possession under the Leases, and to the best of Sellers' knowledge the
Leased Facilities are not subject to any zoning, ordinance or other
restrictions which would prohibit the use and enjoyment of the Leased
Facilities in the manner in which the Leased Facilities are currently
used. Sellers have no knowledge of any condemnation proceedings
relating to the Leased Facilities. To the best of Sellers' knowledge,
the Leased Facilities, and the use thereof by the Company, the
Subsidiary and the Schools are in compliance in all material respects
with all Legal Requirements.
(d) Except for the leased or licensed assets and properties set
forth on Schedule 4.11(d)(i) attached hereto, the Company or the
-------------------
Subsidiary owns outright, and has good and marketable title to, all of
assets and properties used in connection with the operation of the
Schools, free and clear of Encumbrances other than Encumbrances set
forth on Schedule 4.11(d)(ii) ("PERMITTED ENCUMBRANCES"), and liens
--------------------
for current taxes not yet due and payable. All leases for tangible
personal property used by the Company or any Subsidiary in connection
with their operations are valid and in full force and effect and
enforceable in all material respects in accordance with their terms.
Except as set forth in Schedule 4.11(d)(i) attached hereto, no such
-------------------
lease is a capital lease, and neither the Company nor any Subsidiary,
or, to the best of Sellers' knowledge,
-25-
any of the other parties thereto, is in default under any such lease
or license, and no event, act or omission has occurred which (with or
without notice, the passage of time or the happening or occurrence of
any other event) would result in a default thereunder.
(e) The tangible assets (other than the Leased Property) which
are owned or leased by the Company or the Subsidiary and with
individual values of $5,000 or more are listed or reflected on
Schedule 4.11(e) attached hereto, and, to the best of Sellers'
----------------
knowledge, are in good operating condition, order and repair, useable
in the ordinary course of business consistent with past practice,
subject to ordinary wear and tear, and with the additional equipment
already ordered, are sufficient and adequate for all current
operations. None of the Company, the Subsidiary or any Seller has
received notice of any violation of or default under any Legal
Requirement or requirement relating to any of such assets which
remains uncured or has not been resolved.
(f) Other than as listed on Schedule 4.11(f) hereto and the
----------------
Leased Facilities, the Company does not operate, nor during the past
five (5) years has it owned, leased or operated, any Facility.
(g) The Curricula constitutes all of the Curricula currently used
in courses currently offered at the Schools.
(h) The Intellectual Property constitutes all the patents,
trademarks, logos, Tradenames (as defined in Section 4.13(a) herein),
---------------
servicemarks, copyrights, know-how, logos and trade secrets owned by
the Company or the Subsidiary, or used in connection with their
operations, and except for leased or licensed assets and properties
set forth on Schedule 4.11(d)(i), constitutes all the patents,
-------------------
trademarks, logos, Tradenames, servicemarks, copyrights, know-how and
trade secrets otherwise necessary to the business and operations of
the Company and the Subsidiary.
4.12. MATERIAL MISCELLANEOUS CONTRACTS.
--------------------------------
Schedule 4.12 attached hereto sets forth a true, complete and correct
-------------
list of all material contracts, agreements, and commitments relating to the
operations of the Company or the Subsidiary (hereinafter collectively referred
to as the "MATERIAL MISCELLANEOUS CONTRACTS") (a) requiring aggregate payments
after the date hereof in excess of $5,000 or with a term expiring one (1) year
or later after the date hereof, or (b) including confidentiality,
noncompetition, nonsolicitation option or similar provisions, other than (w) the
Leases, (x) leases and licenses listed on Schedule 4.11(d)(i) attached hereto,
-------------------
(y) Plans listed on Schedule 4.21 attached hereto and (z) teachers' contracts
-------------
entered into in the ordinary course of business on standard terms and
conditions. True complete and correct copies of all Material Miscellaneous
Contracts, together with all amendments thereto, have heretofore been delivered
or otherwise made available to Purchaser. The
-26-
Material Miscellaneous Contracts constitute legal, valid and binding obligations
of the Company, or the Subsidiary, as applicable, and to the best of Sellers'
knowledge, the other parties thereto, and to the best of Sellers' knowledge are
in full force and effect. None of Company or any of the Subsidiaries is in
material default or, to the best of Sellers' knowledge, alleged to be in
material default on any term of any such Material Miscellaneous Contract. Except
as noted on Schedule 4.12 attached hereto, the consummation of the transactions
-------------
contemplated by this Agreement does not require the consent or approval of any
party to any Material Miscellaneous Contract.
4.13. TRADENAMES; CONFIDENTIAL INFORMATION.
------------------------------------
(a) All tradenames, logos, trademarks or service marks used in
connection with the operations of the Company, the Subsidiary or the
Schools, and all forms, derivatives and graphic presentations thereof,
including forms of the tradename "International Academy of
Merchandising and Design" and related trademarks, logos and
servicemarks (collectively, the "TRADENAMES"), having material value
to the operations of the Company or the Subsidiary are set forth on
Schedule 4.13(a) attached hereto. To the best of Sellers' knowledge,
----------------
the Company and the Subsidiary have the exclusive right to the use of
each Tradename as an assumed business name in the province in which
such Tradename is used, and Schedule 4.13(a) sets forth all
----------------
registrations (including the jurisdictions thereof) of each Tradename
as a trademark, servicemark or assumed name. The Company has not
licensed any other Person to use any Tradename. None of the Company,
the Subsidiary, or any Seller, has been sued or, to the best of
Sellers' knowledge, threatened with suit for infringement, violation
or breach with respect to any Tradename, and to the best of Sellers'
knowledge, no basis exists for any such suit. None of the Company, the
Subsidiary or any Seller is on notice of any infringement, violation
or breach of any Tradename by any other Person.
(b) To the best of Sellers' knowledge, the Company and the
Subsidiary have the right to use, free and clear of any claims or
rights of any third party, all Intellectual Property (subject in the
case of computer programs to the license agreements in that regard),
customer lists, Curricula and any other proprietary or confidential
information required for or used in the operations of the Schools. To
the best of Sellers' knowledge, none of the Company, the Subsidiary,
or any Seller is in any way making any unlawful or wrongful use of any
tradename, trade secret, customer list, know-how, curricula or any
other proprietary or confidential information of any third party
including, without limitation, any former employer of any present or
past employee of the Company or the Subsidiary.
-27-
4.14. FINANCIAL STATEMENTS.
--------------------
Sellers have previously furnished the Financial Statements to
Purchaser. The balance sheets included in the Financial Statements present
fairly, in accordance with GAAP, the assets and liabilities of the Company and
the Subsidiary as of the respective dates thereof, and the related statements of
operations present fairly, in accordance with GAAP, the results of operations of
the Company and the Subsidiary for the respective periods covered thereby
(subject to the proviso that the Quebec subsidiary was formed in 1996). The
Financial Statements have been prepared in accordance with GAAP (except that the
Interim Financial Statements are not accompanied by all footnotes required by
GAAP and are subject to customary year end adjustments), are correct and
complete in all material respects and fairly present the financial position of
the Company and the Subsidiary as of the dates of such Financial Statements, and
the results of operations and changes in financial position for the periods
covered by such Financial Statements. The Company and the Subsidiary maintained
their financial books and records in accordance with applicable Legal
Requirements and (except for usual statement date adjustments) in accordance
with GAAP, and such books and records are, and during the periods covered by the
Financial Statements were, correct and complete in all material respects, fairly
reflecting the income, expenses, assets and liabilities of the Company and the
Subsidiary. On the date of the balance sheet forming a part of the Interim
Financial Statements, the Company and the Subsidiary had no liabilities which
were required to be set forth in a balance sheet prepared in accordance with
GAAP but that were not included in such balance sheet. Except as set forth in
Schedule 4.14 attached hereto, neither the Company nor the Subsidiary are
-------------
required to provide any letters of credit, guarantees or other financial
security arrangements in connection with any transactions, approvals or licenses
in the ordinary course of operations of the Company or the Subsidiary nor is the
Company or the Subsidiary bound by, party to or subject to any agreement,
contract or commitment providing for the guarantee, indemnification, assumption
or endorsement or any like commitment with respect to the obligations,
liabilities (contingent or otherwise) or indebtedness of any Person. As of the
date hereof, neither the Company nor the Subsidiary has any material
indebtedness, liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, whether known or unknown, other than:
(a) those set forth or reserved against in the balance sheets
included in the Financial Statements for the fiscal years then ended
or disclosed in the footnotes to such Financial Statements, to the
extent so disclosed;
(b) those set forth or reserved against in the Interim Financial
Statements, or those which would have been disclosed in footnotes to
such Interim Financial Statements, if footnotes had been prepared and
which have been disclosed in writing to Purchaser, to the extent set
forth, reserved against or, in the case of footnote items, disclosed;
(c) except as set forth on Schedule 4.14(c) attached hereto,
----------------
those incurred since the Interim Balance Sheet Date in the ordinary
course of
-28-
business and consistent in nature with past practice, or those which
would have been disclosed in footnotes if footnotes had been prepared
and which have been disclosed to Purchaser in writing, to the extent
set forth, reserved or, in the case of footnote items, disclosed;
(d) those set forth on Schedule 4.14(c); and
----------------
(e) those not required to be disclosed in financial statements or
notes thereto prepared in accordance with GAAP.
There are no long-term fixed or contractual liabilities relating to the
operation of the Company or the Subsidiary, as presently operated by the
Company, the annual expenses of which are not reflected in the Financial
Statements where required by GAAP or which are not otherwise disclosed or set
forth in this Agreement or one or more of the schedules hereto. Other than
obligations in respect of prepaid tuition neither the Company nor the Subsidiary
has any obligations in respect of refundable deposits.
4.15. RECEIVABLES.
-----------
The accounts receivable (including, without limitation, student
accounts receivables) of the Company and the Subsidiary, except to the extent of
the allowance for cancellations and doubtful accounts set forth in the Final
Balance Sheet, are bona fide Receivables, arose out of arms' length transactions
in the normal and usual practices of the Company or the Subsidiary, as
applicable, are recorded correctly on the applicable books and records of the
Company and the Subsidiary, and, to the best of Sellers' knowledge, are
collectable in full in the ordinary course of business, subject in the case of
certain Receivables to reserves established for such Receivables in the Final
Balance Sheet. To the best of Sellers' knowledge, such Receivables are not
subject to any defense, counterclaim or setoff or trade discounts or credits not
reflected in the Final Balance Sheet (other than tuition refund policies
administered in accordance with all applicable Legal Requirements and the
applicable Policy Guidelines), and Sellers have no knowledge of any facts or
circumstances which would cause any of such Receivables to have to be written
down or written off in amounts which in the aggregate would be in excess of
reserves established for such Receivables in the Final Balance Sheet.
4.16. INVENTORIES.
-----------
The only inventories maintained by the Company and the Subsidiary
consists of supplies used in the ordinary course of business and are reflected
on the Financial Statements as "inventories." Such supplies will be reflected
at the lesser of the cost or realizable value to the extent thereof on the Final
Balance Sheet and to that extent are usable in the ordinary and regular course
of business, are in all material respects fit and sufficient for the purpose for
which they were purchased and, at the date of this Agreement, are in customary
amounts appropriate to the Company's operation of the Schools. All excess or
obsolete items have been written off.
-29-
4.17. BANK ACCOUNTS.
-------------
Schedule 4.17 attached hereto sets forth a true, complete and correct
-------------
list of the names of all banks and other financial institutions in which the
Company or the Subsidiary has an account or safe deposit box, which list
includes a description of such accounts, the account numbers and the names of
all individuals authorized to draw thereon or have access thereto.
4.18. LITIGATION, ETC.
----------------
(a) Except as set forth in Schedule 4.18(a) attached hereto,
----------------
there are no (a) judgments, decrees, injunctions, rulings, awards or
orders of any Governmental Body or Accrediting Body against or
affecting the Company, or the Subsidiary or the Schools and (b)
Proceedings, pending or, to the best of Sellers' knowledge, threatened
against or affecting the Company, the Subsidiary, or the Schools, at
law or in equity, or before or by any Governmental Body or Accrediting
Body; to the best of Sellers' knowledge, none of the Company, the
Subsidiary or the Schools are the subject of any investigations or
inquiries by any Governmental Body affecting the Company or the
Subsidiary (including inquiries as to the qualification to hold or
receive any of the Licenses and Permits); and, to the best of Sellers'
knowledge, there is no basis for any of the foregoing. There are no
other Proceedings pending, or to the best of Sellers' knowledge,
threatened against or affecting the Company, the Subsidiary, or their
Affiliates generally (including claims with respect to any Employee
Benefit Plans) which if adversely decided would have a material
adverse effect on the Company, the Subsidiary, the Schools, or their
assets taken as a whole.
(b) Except as set forth in Schedule 4.18(b) attached hereto,
----------------
there are no (a) judgments, decrees, injunctions, rulings, awards or
orders of any Governmental Body or Accrediting Body against or
affecting any Seller or such Seller's interest in the Company, or (b)
Proceedings, pending or, to the best of Sellers' knowledge, threatened
against or affecting any Seller's interest in the Company or the
Schools or any Seller, at law or in equity, or before or by any
Governmental Body or Accrediting Body; to the best of Seller's
knowledge, such Seller is not the subject of any investigations or
inquiries by any Governmental Body affecting such Seller (including
claims with respect to any Employee Benefit Plans) which if adversely
decided would have a material adverse effect on the Company, the
Subsidiary or their assets taken as a whole.
4.19. INSURANCE.
---------
Schedule 4.19 attached hereto sets forth all insurance coverages now
-------------
maintained by the Company and the Subsidiary on the Leased Facilities, the
assets and the operations of the Company and the Subsidiary, including a list of
all policies or binders of
-30-
fire, extended coverage, general and vehicular, fidelity and fiduciary
liability, workers' compensation, key-man life and other similar insurance, and
all binders for insurance to be purchased on or before Closing in order to
replace policies expiring prior to the Closing. Copies of such policies have
been previously delivered to Purchaser. Except as set forth in Schedule 4.19
-------------
attached hereto, such policies and binders are in full force and effect, and
there is no material breach or default with respect to any provision contained
in any such policy or binder, and all premiums, to the extent due and payable,
have been paid or the liability therefor properly accrued. Except for amounts
deductible and self-insured retainers under such policies of insurance, the
Company and the Subsidiary have not been, prior to the date hereof, subject to
liability as a self-insurer. Except as set forth in Schedule 4.19 attached
-------------
hereto, there are no claims pending or threatened under any of said policies
pertaining to the Company or the Subsidiary or disputes with underwriters
regarding coverage under such policies pertaining to the Company, the Subsidiary
or the Schools. Except as set forth on Schedule 4.19, neither the execution,
-------------
delivery and performance of this Agreement, nor the consummation of the
transactions contemplated hereby, will result in the loss to the Company or the
Subsidiary of any of the insurance policies listed, or impair the rights of the
Company or the Subsidiary with respect to liabilities arising, in connection
with the operations of the Company and Subsidiary prior to the Closing. Within
five (5) years prior to the date hereof, neither the Company nor the Subsidiary
has been denied insurance, or been offered insurance only at a commercially
prohibitive premium.
4.20. ENVIRONMENTAL MATTERS.
---------------------
Except as set forth in Schedule 4.20 attached hereto, neither the
-------------
Company nor the Subsidiary has generated, transported, stored, treated or
disposed, nor has either of them allowed or arranged for any third persons to
generate, transport, store, treat or dispose of, any Hazardous Substance to or
at: (a) any location other than a site lawfully permitted to receive such
Hazardous Substance for such purposes or (b) any location designated for
remedial action pursuant to federal, state, provincial or local statute and
relating to the environment or waste disposal; nor, to the best of Sellers'
knowledge, has the Company or the Subsidiary performed, arranged for or allowed
by any method or procedure such transportation or disposal in contravention of
any Legal Requirements or in any other manner which may result in liability for
contamination or threat of contamination of the environment in violation of any
Environmental Law, except where such violation would not have a material adverse
effect on the business or operations of the Company or the Subsidiary. Except
as set forth in Schedule 4.20, attached hereto, to the best of Sellers'
-------------
knowledge, no generation, use, handling, storage, treatment, release, threat of
release, discharge, spillage or disposal of any Hazardous Substance in violation
of any Environmental Law, has occurred or is occurring at the Leased Facilities
or, to the best of Sellers' knowledge, any other Facility previously owned or
operated by the Company or the Subsidiary. Except as set forth in Schedule 4.20
-------------
attached hereto, neither the Company, the Subsidiary, nor any Sellers has
received notification of, nor is it aware, of, any past or present failure by
the Company or the Subsidiary to comply with any Environmental Law, including
without limitation the requirements of any permits, franchises, licenses or
orders
-31-
issued pursuant to any Environmental Law, applicable to the Company or the
Subsidiary or their operations. Except as set forth on Schedule 4.20, none of
-------------
the Company or the Subsidiary or Sellers has received any notification, nor is
it aware of, any past or present failure by the Company or the Subsidiary to
comply in any material respect with any Environmental Law, which failure may
result in judicial, regulatory or other legal proceedings that would have a
material adverse impact on the operations of the Company or the Subsidiary or
result in the imposition of any Encumbrance against the Company's or the
Subsidiary's assets. Except as set forth on Schedule 4.20, to the best of
-------------
Sellers' knowledge, the Leased Facilities do not contain asbestos or
polychlorinated biphenyls or any underground storage tanks. None of the Company,
the Subsidiary, or Sellers has received notice from any Governmental Body
requiring any removal or other remediation with respect to asbestos or
polychlorinated biphenyls located at the Leased Facilities.
4.21. EMPLOYEE BENEFIT PLANS.
----------------------
(a) Schedule 4.21(a) lists all Employee Benefit Plans (the
----------------
"PLANS") that the Company or any Subsidiary maintains to which the
Company or any Subsidiary contributes or to which the Company or any
Subsidiary has an obligation to contribute with respect to any current
or former employee of the Company or any Subsidiary, or with respect
to which the Company or any Subsidiary otherwise is reasonably
expected to have any liability or potential liability, whether or not
such plan has terminated or whether or not such plan is or was
maintained for current or former employees of the Company or any
Subsidiary or current or former employees of any other member of the
controlled group of the Company or any Subsidiary.
(b) Except as disclosed on Schedule 4.21(b), neither the Company
----------------
nor the Subsidiary contributes to, has any obligation to contribute to
or otherwise has any liability or potential liability with respect to
any Employee Benefit Plan.
(c) No Plan requires Sellers, the Company or the Subsidiary to
pay separation, severance, termination or other such benefits solely
as a result of any transaction contemplated by this Agreement or
solely as a result of a "change in control" of the Company or such
Subsidiary.
(d) With respect to each Plan, all premiums which are due
(including employer contributions and employee salary deduction
contributions) have been paid to such Plan, and all premiums with
respect to the current plan year for the period ending on the Closing
Date, have been made or accrued. No Plan has any material unfunded
liabilities.
(e) With respect to each Plan, Seller has provided Purchaser with
true, complete and correct copies, to the extent applicable, of: (i)
all
-32-
documents pursuant to which the Plans are maintained, funded and
administered.
(f) The Company does not have nor has it at any time had any
obligations or liabilities with respect to any pension, retirement
arrangement or deferred profit sharing plan for the benefit of its
employees or former employees.
4.22. EMPLOYMENT MATTERS.
------------------
(a) Except as set forth in Schedule 4.22(a) attached hereto, (i)
----------------
to the best of Sellers' knowledge, the Company and the Subsidiary are
in compliance in all material respects with all Legal Requirements
relating to employment and employment practices, including terms and
conditions of employment, employment discrimination and wages and
hours, and none of the Company or the Subsidiary are engaged in any
unfair labor practices with respect to individuals employed by or
providing services to the Company or the Subsidiary; (ii) none of the
Company, the Subsidiary or Sellers are aware of, nor has any of them
received any written or other notice of, any complaints against the
Company or the Subsidiary with respect to individuals employed by or
providing services to the Company or the Subsidiary pending before the
Ontario Labour Relations Board, the Quebec Labour Court, a Quebec
labour commissioner or the Quebec Commission des relations du travail
or any similar provincial or local labor agency or otherwise; (iii)
there are no labor strikes, slow-downs or stoppages or other labor
troubles pending or, to the best of Sellers' knowledge, threatened
with respect to any individuals employed by or providing services to
the Company or the Subsidiary; to the best of Sellers' knowledge no
labor organization activities have occurred with respect to such
employees during the past three (3) years; (iv) there are no
collective bargaining agreements binding on the Company or the
Subsidiary; (v) no labor organization or employee association
represents employees of the Company or the Subsidiary and there have
been no attempts made by any labour organization or employee
association to organize such employees; nor, to the best of Seller's
knowledge, are any such attempts being made, (vi) no grievances have
been asserted by any labor organization against the Company or the
Subsidiary with respect to individuals employed by or providing
services to the Company or the Subsidiary; and (vii) neither the
Company nor the Subsidiary has experienced any work stoppage by such
employees during the last three (3) years. Schedule 4.22(a) attached
----------------
hereto contains a list of all employees of the Company and the
Subsidiary and all material consultants to the Company and the
Subsidiary (including, without limitation, sales representatives and
other recruiters), other than attorneys and accountants, who are
employed or providing services in connection with the operation of the
Company or the Subsidiary including: name; length of service; job
title and job description; rate of base salary, bonus, vacation
entitlements, commissions,
-33-
fees and other incentive compensation; and identifying all contracts,
agreements, commitments and arrangements, written or oral, with such
employees or consultants. None of the contracts, agreements,
commitments and arrangements, written or oral, with such employees or
consultants requires the Company or the Subsidiary to pay separation,
severance, termination or other such benefits solely as a result of a
"change in control" in the Company or the Subsidiary. Sales
representatives and other recruiters for the Company and the
Subsidiary, whether employed directly by or otherwise engaged by the
Company or the Subsidiary, are licensed or registered in accordance
with all applicable Legal Requirements. Except as provided for on
Schedule 4.22(a) hereto, no such sales representative or other
----------------
recruiter receives commissions, bonuses or other contingency payments
based, directly or indirectly, on the enrollment of students by such
individual. True, correct and complete copies of all written
agreements or descriptions of oral agreements, if any between the
Company or the Subsidiary and such employees or consultants and all
amendments thereto have been provided to Purchaser. The Company and
the Subsidiary has performed all of their obligations under such
agreements and are not in default or violation and, to the best of
Sellers' knowledge, the other parties thereto are not in default or
violation, thereunder.
(b) Except as set forth on Schedule 4.22(b), no employee, officer
----------------
or director of the Company or the Subsidiary is a party to, or is
otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, that
in any way adversely affects or will affect (i) the performance of his
or her duties as an employee, officer or director of the Company or
the Subsidiary, or (ii) the ability of the Company or the Subsidiary
to conduct its business, including without limitation the operation of
the Schools. To best of Sellers' knowledge, no employee of the Company
listed on Schedule 4.22(b) intends to terminate his or her employment
----------------
with the Company.
(c) Except as set forth on Schedule 4.22(c), there are no retired
----------------
employees or directors of the Company or the Subsidiary, or their
dependents, receiving benefits or scheduled to receive benefits in the
future from the Company or the Subsidiary. Except as set forth on
Schedule 4.22(c), neither the Company, the Subsidiary, nor any Seller
----------------
is party to any severance or other agreements with employees, former
employees or former owners of the Company.
(d) Schedule 4.22(d) lists all employee manuals and employment
----------------
policies of the Company and the Subsidiary. Except as set forth in
Schedule 4.22(d), the Company or the applicable subsidiary has
----------------
performed all its duties and obligations through the date hereof
pursuant to such manuals and policies.
-34-
(e) The Company and the Subsidiary have paid or accrued all
required payroll-related contributions, remittances, assessments and
taxes including QPP/CPP, EIC, ITA, EHT, CSST, CNT and WCB payments and
none of the Company or the Subsidiary are subject to any complaints,
investigations, penalties, interest charges or assessments in
connection with such payroll-related payments.
4.23. LABOR RELATIONS; COMPLIANCE
---------------------------
None of the Company, the Subsidiary or the Schools has been nor is any
of them a party to any collective bargaining or other labor contract. Except as
set forth on Schedule 4.23(a), there has not been, there is not presently
----------------
pending or existing, and to the best of Sellers' knowledge, there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Company, the
Subsidiary or the Schools relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint or appeal filed by an employee or union with or under the
Ontario Labour Relations Board, the Quebec Labour Court, a Quebec labour
commissioner, the Quebec Commission des relations du travail, the Ontario Human
Rights Commission, the Quebec Human Rights Commission, the Ontario Pay Equity
Commission, the Ontario Occupational Health and Safety Act, the Quebec
Occupational Health and Safety Act, the Ontario Employment Standards Act, the
Quebec Labour Standards Act, the Ontario Workers' Compensation Appeals Tribunal,
the Commission de la sante et de la securite du travail du Quebec and the Quebec
Manpower Vocational Training and Qualification Act or any comparable provincial
or federal Governmental Body, organizational activity, or other labor or
employment dispute against or affecting the Company, the Subsidiary, the Schools
or their premises, or (c) any application for certification of a collective
bargaining agent. To the best of Sellers' knowledge, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute involving the Company or the Subsidiary. There is no lockout of
any employees by the Company or the Subsidiary, and no such action is
contemplated. The Company and the Subsidiary have complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing, except where the failure to comply would not have a
material adverse effect upon the Company, the Subsidiary or their assets.
Except as set forth on Schedule 4.23(b), none of the Company or the Subsidiary
----------------
is subject to any award, decision, injunction, judgment, ruling or verdict,
requiring the payment of any compensation, damages, taxes, fines, penalties, or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements. Except as set forth on Schedule 4.18(a), 4.18(b)
-------------------------
or 4.23(c), there are no wrongful employee dismissal disputes or statutory
----------
complaints against the Company or the Subsidiary against dismissals made for
good and sufficient cause.
-35-
4.24. TAX MATTERS.
-----------
(a) Except as disclosed on Schedule 4.24(a),
----------------
(i) Each of the Company and the Subsidiary has filed or
caused to be filed in the prescribed manner and on or before the
due dates therefor or within applicable extension periods all Tax
Returns that are or were required to be filed by the Company or
the Subsidiary, pursuant to applicable Legal Requirements.
(ii) Sellers have delivered or made available to Purchaser
copies of all such Tax Returns of the Company and the Subsidiary,
filed since January 1, 1993.
(iii) Each of the Company and Subsidiary has paid, or made
provision for the payment of, all Taxes that have or may have
become due from the Company and the Subsidiary, pursuant to such
Tax Returns or otherwise, or pursuant to any assessment received
by the Company or any Subsidiary, except such Taxes, if any, as
are listed in Schedule 4.24(a) and are being contested in good
----------------
faith and as to which adequate reserves (determined in accordance
with GAAP) will be provided in the Final Balance Sheet. The
accrual for Taxes on the Final Balance Sheet will be sufficient
to pay the Taxes payable as a result of the taxation year of the
Company and the Subsidiary ending as a result of the transactions
contemplated hereby.
(iv) The Company and the Subsidiary have complied with all
registration, reporting, collection and remittance requirements
in respect of all federal and provincial sales tax legislation,
including, but not limited to, the Excise Tax Act (Canada), An
Act respecting the Quebec sales tax and the Retail Sales Tax Act
(Ontario). The Company and the Subsidiary have on hand all
invoices, purchase orders and all such other documents as are
necessary to report any claims for input tax credits or refunds
claimed or to be claimed pursuant to the Excise Tax Act (Canada)
or an Act respecting Quebec sales tax.
(b) The Canadian federal and provincial income Tax Returns of the
Company and the Subsidiary have been assessed by the applicable taxing
authorities, or are closed by the applicable statute of limitations,
for all taxation years through the most recently completed taxation
years. The federal tax assessments are statute barred from
reassessment for all years ending prior to April 15, 1993. Schedule
--------
4.24(b) contains a complete and accurate list of all audits of all
-------
such Tax Returns, including a reasonably detailed description of the
nature and outcome of each audit. All deficiencies proposed as a
result of such audits have been paid, reserved against, settled, or,
as described in
-36-
Schedule 4.24(b), are being contested in good faith by appropriate
----------------
proceedings. Schedule 4.24(b) describes all adjustments to date to the
----------------
income Tax Returns filed by the Company and the Subsidiary for all
taxation years since 1993, and the resulting deficiencies proposed by
the applicable taxing authorities. Except as described in Schedule
--------
4.24(b), there are no agreements, waivers or other arrangements
-------
providing for, and none of the Company, the Subsidiary or any Seller
has given or been requested to give, waivers or extensions of any
statute of limitations relating to any assessment or reassessment of
Taxes, the filing of any Tax Return or the payment of Taxes of the
Company or the Subsidiary or for which the Company or the Subsidiary
may be liable. Except as set forth and described in Schedule 4.24(b),
----------------
there is no Proceeding and no assessment, reassessment or request for
information in progress, pending or, to the best of Sellers'
knowledge, threatened against or affecting the Company or the
Subsidiary in respect of Taxes nor are any issues under discussion
with any taxing authority relating to any matters which could result
in claims for additional Taxes.
(c) The charges, accruals, and reserves with respect to Taxes on
the Interim Financial Statements are adequate (determined in
accordance with GAAP) as at the respective dates of the balance sheets
forming a part thereof and are at least equal to the Company's and the
Subsidiary's liability for Taxes accrued through those dates. The
charges, accruals and reserves with respect to Taxes on the Final
Balance Sheet will be adequate and at least equal to the Company's and
the Subsidiary's liability for Taxes through the Closing or arising as
a result of the Closing. To the best of Sellers' knowledge, there
exists no proposed tax assessment or reassessment against the Company
or any Subsidiary except as disclosed in the Interim Financial
Statements or in Schedule 4.24(c). All Taxes that the Company or the
----------------
Subsidiary are or were required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other
Person.
(d) All Tax Returns respectively filed by the Company and the
Subsidiary are true, correct, and complete in all material respects
and each of the Company and the Subsidiary has made complete and
accurate disclosure in such Tax Returns and in all materials
accompanying such Tax Returns.
4.25. BROKERAGE.
---------
Neither Sellers nor the Company (or any of their Affiliates) has
retained any broker or finder, and neither will be obligated to pay any brokers'
or finders' fee, in connection with the negotiation or consummation of the
transactions contemplated by this Agreement.
-37-
4.26. AFFILIATE TRANSACTIONS.
----------------------
Except as set forth in Schedule 4.26 attached hereto or as
-------------
specifically contemplated hereby, no Affiliate of any one or more of the Sellers
is a party to any agreement, contract, commitment or transaction with the
Company or the Subsidiary, or has any material interest in any material property
used in connection with the operations of the Company or the Subsidiary which
will survive the Closing.
4.27. ABSENCE OF CERTAIN CHANGES.
--------------------------
Except as contemplated by this Agreement or as set forth on Schedule
--------
4.27 attached hereto, from the Interim Balance Sheet Date until the date hereof
----
there has not been, occurred or arisen:
(a) any sale, lease, transfer, abandonment or other disposition
of any right, title or interest in or to any of the properties or
assets of the Company or the Subsidiary (tangible or intangible),
except in the ordinary course of business;
(b) other than in the ordinary course of the Company's and the
Subsidiary's operations and consistent with the Company's and the
Subsidiary' past and present business practices, (i) any approval or
action to put into effect any increase in any compensation or benefits
payable to any employee, director, agent or officer of the Company or
the Subsidiary, or any payment, grant or accrual to or for the benefit
of any such employee, director, agent or officer of any bonus, service
award, percentage compensation or other benefit, (ii) any adoption or
amendment of any Plans, or any severance agreement or employment
contract to which any such employee, director, agent or officer is a
party or (iii) any entering into of any employment, deferred
compensation or other agreements with respect to bonuses, service
awards, percentage compensation or other benefits with any such
employee, director, agent or officer;
(c) any material adverse change in the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise),
business prospects, reserves or operations of the Company or the
Subsidiary which would have a material adverse effect;
(d) any capital expenditure by the Company or the Subsidiary;
(e) any damage, destruction or loss, whether or not covered by
insurance, materially adverse to the assets, business, or operations
of the Company or the Subsidiary;
(f) any change in any material respect in the business policies
or practices of the Company or the Subsidiary or a failure of the
Company or the
-38-
Subsidiary to operate the Schools in the ordinary course with a view
to preserving such businesses intact, to retaining the services of the
present officers, employees and agents, except for Sellers other than
Gross, and with a view to preserving the business relationships of the
Company and the Subsidiary, including without limitation business
relationships of the Schools with, and the goodwill of, students,
sales representatives, suppliers, Accrediting Bodies, Governmental
Bodies and others; or
(g) any written agreement, or otherwise binding agreement, to
take any action described in this Section 4.27.
------------
4.28. INDEBTEDNESS.
------------
Schedule 4.28 attached hereto contains a true, correct and complete
-------------
list of all indebtedness of the Company and the Subsidiary for borrowed money,
including capital leases, and the balances owing thereunder as of the date
hereof.
4.29. CONDUCT OF BUSINESS SINCE INTERIM BALANCE SHEET DATE.
----------------------------------------------------
Except as set forth in Schedule 4.29 hereto, from the Interim Balance
-------------
Sheet Date to the date of this Agreement, the Company and the Subsidiary have
conducted their operations only according to their ordinary and usual course of
business, and the Company and the Subsidiary have used their best efforts to
preserve intact the Company's and the Subsidiary's business organizations, keep
the services of its employees and maintain satisfactory relationships with
Accrediting Bodies, suppliers, agents, students and others having business
relationships with the Company and the Subsidiary.
4.30. ACCREDITING BODY APPROVALS.
--------------------------
To the best of Sellers' knowledge, there exists no fact or
circumstance attributable to Sellers, the Company, the Subsidiary or the Schools
that would cause MET or ME or any other Governmental Body or the Accrediting
Body whose authorization, consent or similar approval is a requirement for the
consummation of the transactions contemplated by this Agreement or the
continuation for the Schools to be fully eligible for governmental programs of
student financial assistance at levels not materially less than the levels for
which the Schools have been eligible in the most recent academic year to refuse
to deliver such authorization, consent or similar approval.
4.31. DELIVERY OF DOCUMENTS.
---------------------
True, correct and complete copies of all Leases, Material
Miscellaneous Contracts, Plans, Policy Guidelines and other documents,
instruments, agreements and records of the Company and the Subsidiary described
on schedules to this Agreement or relating to the assets, liabilities and the
operations of the Company and the Subsidiary, or the representations and
warranties of Sellers contained in this Agreement, have been delivered or made
available to Purchaser.
-39-
4.32. DISCLOSURE.
----------
This Agreement, together with the schedules, exhibits and attachments
hereto, do not contain any untrue statement of a material fact or omit to state
a material fact necessary to make such statements not misleading in light of the
circumstances in which such statements were made.
4.33. RESIDENCE OF SELLERS.
--------------------
Each of the Sellers, with the exception of Gross, is a "non-resident"
of Canada within the meaning of the Income Tax Act (Canada). ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
is a resident of Canada within the meaning of the Income Tax Act (Canada).
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
-------------------------------------------
As a material inducement to Sellers to enter into this Agreement and
to sell the Shares, Purchaser hereby represents and warrants as of the date
hereof that:
5.1. ORGANIZATION AND CORPORATE POWER.
--------------------------------
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Purchaser is qualified to
do business as a foreign corporation in each jurisdiction in which the nature of
its operations requires, or as of the Closing will require, it to so qualify,
except where failure to so qualify would not have a material adverse effect on
its business or operations. Purchaser has all requisite corporate power and
authority to own and operate its properties and assets, to carry on its business
as now conducted, and to consummate the transactions contemplated hereby. The
copies of Purchaser's articles of incorporation and by-laws which have been
furnished by Purchaser to Sellers reflect all amendments made thereto at any
time prior to the date of this Agreement and are correct and complete.
5.2. CAPACITY; AUTHORIZATION, BINDING EFFECT, ETC.
---------------------------------------------
Purchaser has the unrestricted and absolute power, legal capacity and
authority to execute, deliver and perform this Agreement and each other document
being executed by it in connection herewith to which it is a party. This
Agreement has been, and each such other document and agreement to be executed in
connection herewith, as of the Closing, will have been, duly executed and
delivered by Purchaser and (assuming the due authorization, execution and
delivery hereof and thereof by Sellers and any other parties thereto), this
Agreement is, and each such other document or agreement will be, a valid and
binding obligation of Purchaser, enforceable against it in accordance with its
terms.
5.3. NO CONFLICTS, ETC.
------------------
Except as set forth in Schedule 5.3, the execution, delivery and
------------
performance of this Agreement by Purchaser, and each other document being
executed by Purchaser, in
-40-
connection herewith, and the consummation of the transactions contemplated
hereby and thereby do not and will not (a) contravene, conflict with, or result
in violation of (i) any provision of the articles of incorporation or bylaws of
Purchaser, or (ii) any resolution adopted by the board of directors or
stockholders of Purchaser, (b) contravene, violate or conflict with any Legal
Requirement applicable to Purchaser, (c) with or without the giving of notice,
the passage of time, or both, conflict with, or result in the breach or
termination of, or default under, any provisions of any material instrument,
license, permit, authorization, agreement or commitment to which Purchaser is a
party or by which their assets are bound, (d) constitute a violation of any
order, judgment or decree to which Purchaser is a party or by which their assets
or properties are bound; or (e) except as set forth in Schedule 5.3, require any
------------
approval of, or filing or registration with, any Governmental Body or
Accrediting Body that is required to be obtained or made by Purchaser, other
than approvals, filings and registrations which have been previously obtained or
made, or which are required and will be obtained or made in the ordinary course
of Purchaser's and Purchaser's business and operations.
5.4. LITIGATION.
----------
There are no Proceedings pending against or, to the best of
Purchaser's knowledge, threatened against or affecting Purchaser at law or in
equity, or before or by any Governmental Body or Accrediting Body seeking to
enjoin, restrain or delay the consummation of the transactions contemplated by
this Agreement and to the best of Purchaser's knowledge, there is no basis for
the foregoing.
5.5. BROKERAGE.
---------
Purchaser has not retained any broker or finder, and neither will be
obligated to pay any brokers' or finders' fee, in connection with the
negotiation or consummation of the transactions contemplated by this Agreement.
5.6. ACCREDITING BODY APPROVALS.
--------------------------
To the best of Purchaser's knowledge, there exists no fact or
circumstances attributable to Purchaser, or its subsidiaries that would cause
MET, or the ME, any other Governmental Body or the Accrediting Body whose
authorization, consent or similar approval is a requirement for the consummation
of the transactions contemplated by this Agreement or the continuation of the
Schools to be fully eligible for governmental programs of student financial
assistance at levels not materially less than the levels for which the Schools
have been eligible in the most recent academic year, to refuse to deliver such
authorization, consent or similar approval.
5.7. DISCLOSURE.
----------
Neither this Agreement, nor any of the schedules, exhibits or
attachments hereto prepared or supplied by Purchaser, or any documents,
certificates or other written agreements delivered by or on behalf of Purchaser
with respect to the transactions
-41-
contemplated hereby, contain any untrue statement of material fact or omit a
statement of material fact necessary to make such statements not misleading in
light of the circumstances in which such statements were made.
5.8. PURCHASER'S KNOWLEDGE; RESOURCES OF PURCHASER.
---------------------------------------------
To the best of Purchaser's knowledge, there exists no fact or
circumstance that would cause any representation or warranty of Sellers to be
materially incorrect or untrue. Purchaser represents that Purchaser has
adequate resources to complete the transactions contemplated hereby.
5.9. MAINTENANCE OF INSURANCE.
------------------------
From and after the Closing Date and until all amounts payable to
Sellers hereunder are paid in full, Purchaser shall maintain such insurance
policies as are adequate and reasonable in the sole discretion of Purchaser in
both scope and amount for the Company and the Subsidiary.
6. ADDITIONAL COVENANTS OF THE PARTIES.
-----------------------------------
6.1. CONFIDENTIAL INFORMATION.
------------------------
(a) Each Seller acknowledges and agrees that such Seller is in
possession of Confidential Information (as defined herein) relating to
the Company and the Subsidiary. For purposes hereof, "CONFIDENTIAL
INFORMATION" shall mean all proprietary or confidential information
concerning the business, Intellectual Property, Curricula, and other
properties and operations of the Company and the Subsidiary,
including, without limitation, all student and prospective student
lists, supplier lists, know-how, trade secrets, business and marketing
plans, techniques, forecasts, projections, budgets, unpublished
financial statements, price lists, costs, computer programs, source
and object codes, algorithms, data, and other original works of
authorship, along with all information received from third parties and
held in confidence by the Company, the Subsidiary or such Seller
(including, without limitation, personnel files and student records).
Each Seller agrees that such Seller will hold the Confidential
Information in the strictest confidence and will not disclose or make
use of (directly or indirectly) the Confidential Information or any
portion thereof to or on behalf of themselves or any third party,
except (i) as required in the performance of such Seller's duties and
obligations pursuant to the Noncompetition Agreements, this Agreement
or any employment agreement with Purchaser, the Company, the
Subsidiary or any Affiliate of any of them, (ii) as required by the
order of any court or similar tribunal or any other Governmental Body
of appropriate jurisdiction; provided, however, that Sellers shall, to
the extent practicable, give Purchaser prior written notice of any
such required disclosure and shall cooperate with
-42-
Purchaser in obtaining a protective order or such similar protection
as Purchaser may deem appropriate to preserve the confidential nature
of such information, (iii) disclosure to professional advisors of the
Seller, provided, however such Seller must advise the professional
--------
advisors of the confidential nature of such information, and (iv)
disclosure for use in or the purposes of a dispute or in a Proceeding
with the Purchaser or any of the other Sellers in connection with the
obligations and transactions hereunder . The foregoing obligations to
maintain the Confidential Information shall not apply to any
Confidential Information which is or, without any wrongful action by
Sellers, becomes generally available to the public. Upon consummation
of the sale of the Shares to Purchaser, each Seller shall have
delivered to Purchaser (directly or to the Company or the Subsidiary)
all physical embodiments of the Confidential Information (regardless
of form or medium) in the possession of or under the control of that
Seller. The parties hereto each recognize that the other parties
hereto will suffer irreparable injury in the event of a breach of the
terms of this Section 6.1(a) by a Seller. Notwithstanding any
--------------
provision to the contrary contained herein, including without
limitation the provisions of Section 9, in the event of a breach of
---------
the terms of this Section 6.1(a), Purchaser shall be entitled, in
--------------
addition to any other remedies and damages available and without proof
of monetary or immediate damage, to a temporary and/or permanent
injunction, without bond, to restrain the violation of this Section
-------
6.1(a) by any Seller or any Person acting for or in concert with any
------
Seller.
6.2. ADDITIONAL COVENANTS OF SELLERS PENDING CLOSING.
-----------------------------------------------
Pending the Closing, Sellers shall cooperate fully with Purchaser, its
officers, employees, representatives and agents in connection with accomplishing
the satisfaction of all conditions to the Closing and with all other matters
relating to the consummation of the transactions contemplated by this Agreement.
Pending the Closing and subject to all the limitations contained in any relevant
Legal Requirements, Sellers shall afford to all representatives of Purchaser
reasonable access during normal business hours to the assets, properties, books,
financial statements, work papers and records of the Company and the Subsidiary
in order that Purchaser have full opportunity to make investigations thereof.
In addition, Sellers shall, and shall cause the Company and the Subsidiary to,
use good faith efforts to assist Purchaser in obtaining any required
Accreditation from any Accrediting Body reasonably necessary for Purchaser's
operation of the Schools, including furnishing Purchaser such necessary
information and reasonable assistance as Purchaser may request in connection
with its preparation of necessary filings, submissions or applications to any
such Accrediting Body and any Governmental Bodies in connection with the
transactions contemplated hereby. In addition, Sellers shall use their best
efforts to obtain the consents and approvals set forth in Section 3.1(h).
--------------
Furthermore, during the period from the date of this Agreement to the Closing
Date, neither the Company nor the Subsidiary shall conduct any business or incur
or assume any liabilities or obligations of any kind, except for such business,
liabilities and obligations as may be conducted or incurred in the ordinary
course of business of the Company and the Subsidiary or as expressly permitted
or required by the
-43-
terms of this Agreement or as to which Purchaser may consent in writing.
Purchaser hereby consents to the Company continuing with its improvements at ▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, leasing additional equipment (as
referenced to in one or more of the Schedules hereto) and receiving cash
advances from Gross. During the period from the date of this Agreement to the
Closing Date, Sellers shall use their good faith efforts to preserve intact the
business organization of the Company and the Subsidiaries, to pay operating
expenses in the ordinary course of business, to keep available the services of
their employees, and to maintain satisfactory relationships between the Company
and the Subsidiary, and the Accrediting Body, Governmental Bodies, suppliers,
agents, students and others having business relationships with the Company or
the Subsidiary. Sellers shall promptly notify Purchaser of any occurrence or
event that would or is likely to make untrue any representation or warranty of
Sellers made in Section 4 as of the Closing Date, or which would or is likely to
---------
result in an inability to satisfy any condition set forth in Sections 7 or 8.
---------- -
Notwithstanding the foregoing, the Company shall be permitted to redeem shares
of its capital stock, make distributions to its shareholders in respect of such
redemptions, and pay other compensation to its shareholders and Affiliates;
provided, that such activities shall not result in the breach of any
--------
representation or warranty of Sellers hereunder.
6.3. EMPLOYEES.
---------
During the period from the date of this Agreement to the Closing Date,
Sellers shall cause the Company and the Subsidiary to use their good faith
efforts to retain the services of all senior managerial employees of the Company
and the Subsidiary. During the period from the date of this Agreement to the
Closing Date, none of the Company, the Subsidiary or the Sellers shall offer any
employee or sales representative of the Company or the Subsidiary any other
employment with Sellers, the Company or the Subsidiary, or any of their
Affiliates, without the prior written consent of Purchaser.
6.4. EXCLUSIVE DEALING.
-----------------
During the period from the date of this Agreement to the earlier of
(a) the Closing Date or (b) the date of termination of this Agreement pursuant
to Section 11.1 hereof, Sellers and their Affiliates shall not and shall not
------------
permit the Company or the Subsidiary to, directly or indirectly, encourage,
initiate or engage in discussions or negotiations with, or (except as
contemplated by this Agreement) provide any information to, any Person, other
than Purchaser, concerning any proposed purchase of the Company, the Subsidiary
or the Schools, or any similar transaction involving the Company, the Subsidiary
or the Schools, or Sellers' interest in any of them.
6.5. ADDITIONAL COVENANTS OF PURCHASER PENDING CLOSING.
-------------------------------------------------
Purchaser covenants and agrees that from and after the date of this
Agreement, and until the earlier of the Closing Date or the termination of this
Agreement pursuant to Section 11.1 hereof, Purchaser (a) shall use its good
------------
faith efforts to fulfill or
-44-
satisfy, or cause to be fulfilled or satisfied, all of the conditions precedent
to Sellers' obligations to consummate and complete the transactions contemplated
by this Agreement, including without limitation the sale of the Shares provided
herein, and to take all other steps and do all other things reasonably required
to consummate this Agreement in accordance with its terms; and (b) shall not
interfere with the performance by Sellers of their obligations under this
Agreement.
6.6. INITIAL PUBLIC OFFERING.
-----------------------
In the event that Purchaser engages in an Initial Public Offering of
its common stock at any time prior to the third anniversary of the Closing Date,
Purchaser shall use its best efforts (which best efforts shall not, however,
include the expenditure of more than nominal amounts of money by Purchaser), to
reserve up to one and one-quarter percent (1.25% in the aggregate) of the total
shares offered in such Initial Public Offering for purchase by Sellers. Each
Seller shall be eligible to purchase up to its pro rata twenty-five (25%)
portion of the one and one quarter percent (1.25%) whether or not any other
Seller elects to purchase such stock.
7. CONDITIONS TO PURCHASER'S OBLIGATIONS.
-------------------------------------
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, or to the waiver
in writing by Purchaser, on or before the Closing Date, or, where applicable,
such other date as is set forth herein, of the conditions set forth below:
7.1. DUE DILIGENCE REVIEW.
--------------------
Purchaser shall have completed and shall be satisfied with the results
of its due diligence review of the Company the Subsidiary and the Schools,
including, without limitation, review of the Company's and the Subsidiary'
assets, properties, business, financial condition and business prospects, legal
and accounting review of all liabilities and contingencies, Facility visits,
regulatory compliance analysis (including financial aid administration and
cohort default rates), assessment of relations with Accrediting Bodies and
Governmental Bodies, access to lenders for student loan programs, and completion
of a satisfactory market analysis.
7.2. FINANCING.
---------
Purchaser shall have obtained approval for the transactions
contemplated by this Agreement and equity and/or debt financing from its present
financing sources (a) in an amount sufficient to pay the Purchase Price and to
pay the Noncompetition Payments, and (b) upon terms satisfactory to Purchaser,
and its stockholders, and consistent with satisfying financial requirements of
the MET or, the ME, other applicable federal and provincial regulators and the
applicable Accrediting Bodies.
-45-
7.3. TRUTH OF REPRESENTATIONS AND WARRANTIES.
---------------------------------------
The representations and warranties of Sellers contained in this
Agreement and in any certificate delivered by Sellers in accordance with the
terms hereof shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date (except to the extent such representations
and warranties speak of a particular date and except to the extent that any
failure to satisfy this requirement would not have a material adverse effect on
the business assets, or operations of the Company or any of the Subsidiary), and
Sellers shall have delivered to Purchaser a certificate, dated the Closing Date,
to such effect.
7.4. PERFORMANCE OF AGREEMENTS.
-------------------------
Each and all of the agreements of Sellers to be performed on or before
the Closing Date pursuant to the terms hereof shall have been fully performed in
all material respects, each of the documents, agreements and other items to be
delivered to Purchaser pursuant to Section 3.1 shall have been delivered, and
-----------
Sellers shall have delivered to Purchaser a certificate, dated the Closing Date,
to such effect.
7.5. NO MATERIAL ADVERSE CHANGE.
--------------------------
Since the date of this Agreement, there shall have been no material
adverse change in the properties, business, assets, results of operations,
condition (financial or otherwise) or business prospects of the Company or the
Subsidiary, there shall have been no material deviation in the Company's or the
Subsidiary's working capital position (other than its cash position) since the
Interim Balance Sheet Date, and Sellers shall have delivered to Purchaser a
certificate, dated as of the Closing Date, to such effect.
7.6. LITIGATION.
----------
No Legal Requirement shall have been enacted, issued, promulgated or
entered by any Governmental Body and no injunction or order of any court or
other Governmental Body or Accrediting Body shall have been entered, in either
case, which prohibits or restricts the transactions contemplated hereby, and no
Proceeding shall have been instituted or threatened by any Person before a court
or other Governmental Body or Accrediting Body: (i) seeking to restrain or
prohibit any of the transactions contemplated hereby or (ii) challenging or
questioning the right, title or interest of Sellers in and to the Shares to be
transferred under this Agreement or the right of Sellers to transfer validly all
of such right, title and interest in and to such Shares to Purchaser.
7.7. ACCREDITING BODY APPROVAL.
-------------------------
To the extent available prior to Closing, the approvals of any
applicable provincial regulatory agency with jurisdiction over the Schools and
the applicable Accrediting Bodies for
-46-
(a) the consummation of the transactions contemplated by this
Agreement with respect to the Schools, including approval for issuance
of licenses or registrations to Purchaser to operate the Schools; and
(b) the continuation of the Schools to be fully eligible for
governmental programs of student financial assistance at levels not
materially less than the levels for which the Schools have been
eligible in the most recent academic year, shall have been received,
shall continue in full force and effect, and shall not contain terms
and conditions which, as a result of facts or circumstances
attributable solely to Sellers, or to the condition of the Company,
the Subsidiary or the Schools prior to Closing, in Purchaser's
reasonable judgment reduce or are reasonably likely to reduce the
economic benefit to Purchaser and its Affiliates that Purchaser
anticipated to receive from the consummation of the transactions
contemplated hereby, or would impose burdensome restrictions or
limitations on the activities of Purchaser or its Affiliates unrelated
to the Schools.
7.8. PROCEEDINGS.
-----------
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory, in all material respects, in form and substance to
Purchaser and its counsel, and Purchaser shall have received copies of all such
documents and other evidence as Purchaser or its counsel may reasonably request
in order to establish the consummation of such transactions and the taking of
all appropriate proceedings in connection therewith.
7.9. FINANCIAL AID COMPLIANCE AUDIT.
------------------------------
Sellers shall have delivered to Purchaser a copy of its financial aid
compliance audit report submitted to MET and the ME for the regulatory year
ended June 30, 1996, which report shall be satisfactory to Purchaser acting
reasonably.
7.10. CONSENTS AND APPROVALS.
----------------------
Sellers shall have obtained the consents and approvals set forth in
Section 3.1(g), and such consents and approvals shall remain in full force and
--------------
effect.
7.11. ENVIRONMENTAL ASSESSMENT.
------------------------
Purchaser shall have received a Phase I environmental site assessment
for each of the Leased Facilities, which assessments shall be satisfactory to
Purchaser. Purchaser acknowledges it has received the assessments and such
assessments are satisfactory to Purchaser.
-47-
7.12. INVESTMENT CANADA ACT.
---------------------
Purchaser shall have:
(a) within thirty (30) days of the Closing Date, filed a notice
with Investment Canada of the transaction contemplated hereunder; and
(b) received a receipt issued under the Investment Canada Act
(Canada) certifying that a notice in prescribed form in respect of
the acquisition of the Shares by Purchaser as herein contemplated
has been duly filed under the said Act and that such acquisition is
not reviewable.
7.13. CORPORATE MATTERS PERTAINING TO COMPANY.
---------------------------------------
(a) Sellers shall have delivered to Purchaser true, complete and
--------
accurate copies of the corporate record books of the Company, in form
and substance satisfactory to Purchaser.
(b) Unless waived in writing by Purchaser, Sellers shall have
delivered to Purchaser evidence that all necessary and appropriate
actions have been taken to reinstate the Company in Quebec retroactive
back to the date of non-compliance and that all taxes, penalties,
interest, and other charges and fees related thereto have been paid.
7.14. SUBSIDIARY CORPORATE MATTERS.
----------------------------
(a) Sellers shall have delivered to Purchaser true, complete and
--------
accurate corporate record books for the Subsidiary, in form and
substance satisfactory to Purchaser.
(b) Sellers shall have delivered to Purchaser evidence of the
transfer of assets from the Company to the Subsidiary in form and
substance satisfactory to Purchaser.
7.15. LEASE ON 31 WELLESLEY PROPERTY.
------------------------------
Sellers and Purchasers shall have entered into a lease for the real
property located at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇.
If the Closing occurs, notwithstanding that not all of the foregoing
conditions have been satisfied or so waived, Purchaser shall not be entitled to
rescind its purchase by virtue thereof.
8. CONDITIONS TO SELLERS' OBLIGATIONS.
----------------------------------
The obligations of Sellers to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, or to the waiver in writing
by Sellers, on or
-48-
before the Closing Date, or, where applicable, such other date as is set forth
herein, of the following conditions:
8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES.
---------------------------------------
The representations and warranties of Purchaser contained in this
Agreement and in any certificate delivered by Purchaser in accordance with the
terms hereof shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date (except to the extent such representations
and warranties speak of a particular date and except to the extent that any
failure to satisfy this requirement would not have a material adverse effect on
the business, assets or operations of Purchaser), and Purchaser shall have
delivered to Sellers a certificate, dated as of the Closing Date, to such
effect.
8.2. PERFORMANCE OF AGREEMENTS.
-------------------------
Each and all of the agreements of Purchaser to be performed on or
before the Closing Date pursuant to the terms hereof shall have been fully
performed in all material respects, and each of the documents, agreements and
other items, to be delivered to Sellers pursuant to Section 3.2 shall have been
-----------
delivered, and Purchaser shall have delivered to Sellers a certificate, dated
the Closing Date, to such effect.
8.3. LITIGATION.
----------
No Legal Requirement shall have been enacted, issued, promulgated or
entered by any Governmental Body and no injunction or order of any court or
other Governmental Body or Accrediting Body shall have been entered, in either
case, which prohibits or restricts the transactions contemplated hereby, and no
Proceeding shall have been instituted or threatened by any Person before a court
or other Governmental Body or Accrediting Body; (i) seeking to restrain or
prohibit any of the transactions contemplated hereby, or (ii) unless Purchaser
has agreed to waive its right to indemnification with respect thereto,
challenging or questioning the right, title or interest of Sellers to transfer
validly all of such right, title and interest in and to the Shares to be
transferred to Purchaser.
8.4. PROCEEDINGS.
-----------
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance, in all material respects, to
Sellers and their counsel, and Sellers shall have received copies of all such
documents and other evidence as they or their counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
appropriate proceedings in connection therewith.
-49-
LEASE ON 31 WELLESLEY PROPERTY.
------------------------------
Sellers and Purchasers shall have entered into a lease for the real
property located at ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇.
9. INDEMNIFICATION REMEDIES
------------------------
9.1. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
------------------------------------------------------------
All representations, warranties, covenants, and obligations in this
Agreement, or in any other certificate or document delivered pursuant to this
Agreement, will survive the Closing as provided herein. Subject to Section 5.8
-----------
hereof, the right to indemnification, through the payment of Damages based on a
breach of such representations, warranties, covenants and obligations, will not
be affected by any investigation conducted at any time before or after the
execution of this Agreement or the Closing Date with respect to the accuracy or
inaccuracy of, or compliance with, any such representation, warranty, covenant
or obligation except as provided in this Agreement.
9.2. INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
-------------------------------------------------
Sellers will indemnify and hold harmless Purchaser for, and will pay
to the Purchaser the amount of, any actual loss, liability, claim, damage
(excluding any and all punitive, exemplary, or consequential damages), expense
(including costs of investigation and defense and reasonable attorney's fees),
whether or not involving a third-party claim, suffered or incurred by the
Purchaser (including, all Damages suffered or incurred by the Company or the
Subsidiary which would not have been suffered or incurred if there had been no
breach of any representation, warranty or covenant made by Sellers under this
Agreement or in any other document delivered by Sellers pursuant to this
Agreement) (collectively, "DAMAGES"), arising, directly or indirectly, from or
in connection with:
(a) any breach of any representation or warranty made by Sellers
in this Agreement or in any other document delivered by Sellers
pursuant to this Agreement;
(b) any breach by any Seller of any covenant in or obligation
of, any Seller in this Agreement or any other document delivered by
such Seller pursuant to his Agreement;
(c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any
Seller or the Company or any Subsidiary (or any Person acting on their
behalf) in connection with any of the transactions contemplated by
this Agreement; or
(d) (i) any debt, obligation or liability of the Company or the
Subsidiary, or any claim against any of them, of any kind, whether
known or
-50-
unknown, contingent, absolute or otherwise, affecting the Company or
any Subsidiary which resulted from or arose out of the operation of
the Company or the Subsidiary prior to Closing, to the extent (A) not
disclosed in this Agreement (including any of the Schedules hereto) or
reflected or disclosed in the balance sheets forming a part of the
Financial Statements (including without limitation, any liability for
Taxes (other than Taxes not yet due and payable in the amounts
reflected on the Final Balance Sheet, Taxes constituting sales taxes
in connection with accounts payable reflected on the Final Balance
Sheet and Taxes relating to the period after Closing not resulting
from any breach of representation or warranty of Sellers hereunder));
(B) not taken into account in determining the Net Worth (as defined in
Section 2.3(a)), or (C) not arising under nonmaterial contracts
---------------
entered into in the ordinary course of business; (ii) financial aid
irregularities relating to operation of the Schools that occurred or
relate to activities or actions occurring prior to the Closing,
including without limitation any liabilities resulting from or arising
out of any show cause order, any audit review disallowances,
improperly disbursed student financial assistance program funds or
similar determinations ("PRE-CLOSING FINANCIAL AID IRREGULARITIES") or
the cost of responding to any audits, program reviews or other
investigations which disclose material Pre-Closing Financial Aid
Irregularities, whether such audit or investigation is in progress as
of the Closing Date or commences after the Closing or (iii) litigation
affecting the Company or any Subsidiary pending or threatened as of
Closing, other than litigation which is disclosed on Schedules hereto
which is covered by Section 9.10 hereof.
------------
9.3. INDEMNIFICATION AND PAYMENT OF DAMAGES BY PURCHASER.
---------------------------------------------------
Purchaser will indemnify and hold harmless Sellers, and will pay to
Sellers the amount of any Damages arising from or in connection with:
(a) any breach of any representation or warranty made by
Purchaser in this Agreement or in any certificate delivered by
Purchaser pursuant to this Agreement;
(b) any breach by Purchaser of any covenant or obligation of
Purchaser in this Agreement; or
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with Purchaser
or Purchaser (or any Person acting on their behalf) in connection with
any of the transactions contemplated by this Agreement.
-51-
9.4. LIMITATIONS ON AMOUNT
---------------------
(a) Notwithstanding any provisions of this Agreement to the contrary,
Sellers will have no liability with respect to the matters described in
clause (a), clause (b), or clause (d) of Section 9.2 other than for (i)
-----------
Damages up to the aggregate amount of $4,250,000 for which claims are made
on or before the eighteen (18) month anniversary of the Closing, and (ii)
Damages up to the aggregate amount of $2,550,000 for which claims are made
after the eighteen (18) month anniversary and on or before the four (4)
year anniversary of the Closing; provided that in no event shall the total
liability of Sellers for indemnification pursuant to clause (a), clause (b)
and clause (d) of Section 9.2 exceed $4,250,000 in the aggregate
-----------
("INDEMNIFICATION CAP") and further provided that in the event that there
is an adjustment of the Purchase Price pursuant to Section 2.3 hereof, the
-----------
Indemnification Cap shall be similarly adjusted by an amount equal to fifty
percent (50%) of such adjustment to the Purchase Price but in no event
shall such adjustment to the indemnification cap exceed $200,000.
(b) Notwithstanding Section 9.4(a), in the event of any breach of (i)
--------------
any Sellers' representations and warranties of which any Seller had actual
knowledge at any time prior to the date on which such representation and
warranty is made; or (ii) any intentional breach by Sellers of any covenant
or obligation, Sellers will be liable for all Damages with respect to such
breaches provided that in no event shall the total liability of any Seller
hereunder exceed the total value of consideration received by such Seller.
9.5. LIABILITY OF INDIVIDUAL SELLERS; BREACHES BY INDIVIDUAL SELLERS
---------------------------------------------------------------
(a) Notwithstanding any provision of this Section 9 to the contrary,
---------
in the event of any breach of the provisions of Sections 2.5(d), 4.2(b),
------------------------
4.3, 4.4(b), 4.6(a)(ii) or 4.18(b) resulting from the acts or capacity of,
----------------------------------
or knowledge or belief of, one or more specific Sellers (in their capacity
as shareholders, as opposed to corporate directors, officers, employees or
agents), only the particular Seller or Sellers whose acts or capacity, or
knowledge or belief, are the basis for such breach shall be liable pursuant
to Section 9.2 to indemnify Purchaser for Damages resulting therefrom
-----------
provided that in no event shall the total liability of any Seller hereunder
exceed the total value of consideration received by such Seller.
(b) Except as provided in Section 9.5(a), each individual Seller's
--------------
liability in respect of any claim for Damages shall be limited to an amount
equal to the product of: (1) a fraction (i) the numerator of which is the
total value of the consideration received by such Seller hereunder and (ii)
the denominator of which is the total consideration paid to all Sellers
hereunder, multiplied by (2) the total amount of such Damages provided,
however, that
-52-
the indemnification amount shall not exceed the total value of the
consideration received by such Seller hereunder.
9.6. FURTHER LIMITATIONS ON REMEDIES.
-------------------------------
(a) Except in connection with the enforcement of their respective
rights pursuant to Section 10 hereof or as otherwise expressly provided
----------
herein, any claim by any party hereto arising out of or relating in anyway
to this Agreement shall have as its sole remedy the indemnification
provided by this Section 9. Notwithstanding the foregoing, nothing herein
---------
shall preclude any party from seeking to exercise or enforce any rights
under any other agreements executed in connection with the transactions
contemplated by this Agreement or injunctive or other equitable relief as
may be necessary or desirable to protect its rights hereunder, Sellers
hereby acknowledge and agree that no waiver or release by the Company or
the Subsidiary or the Schools of the Sellers, or any of them, executed or
issued prior to the Closing shall constitute a waiver, release or
limitation in any way of the provisions of this Section 9.
---------
(b) Except for Damages based upon or arising out of a breach of
representation or warranty subject to Section 9.5(a) hereof, Sellers shall
--------------
not be liable for indemnification for Damages until the amount of Damages
exceeds, in the aggregate, the sum of $100,000 (the "INDEMNIFICATION
THRESHOLD")
(c) All Damages shall be determined net of any tax benefit or
economic benefit to the Purchaser, Company, or Subsidiary, arising in
respect of or as a result of the matters for which the Damages are claimed
or insurance proceeds derived (or reasonably expected to be derived) by any
of the foregoing.
(d) Notwithstanding anything to the contrary contained herein, in no
event shall any party be entitled to recover more than once for the same
matter.
9.7. PROCEDURES.
----------
(a) Any claim under Section 9.2 or Section 9.3 shall be made in a
----------- -----------
written statement signed by the party seeking indemnification which shall
specify in reasonable detail each individual item of Damage and the
estimated amount thereof, the date such item was claimed or the facts
giving rise to such claim were discovered, the basis for any alleged
liability and the nature of the breach or claim to which each such item is
related.
(b) If the indemnifying party does not pay the amount specified in
any such statement within thirty (30) days after it has been delivered by
the party seeking indemnification, the party seeking indemnification may
enforce its right in accordance with law.
-53-
(c) The party seeking indemnification in respect of any third party
claim shall give the indemnifying party prompt notice of any Proceeding
which might give rise to liability of the indemnifying party for
indemnification hereunder; provided, that failure to give the indemnifying
party prompt notice will not relieve such indemnifying party of any
liability to the indemnified party hereunder, except to the extent the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnified party's failure to give such notice. If the
indemnifying party wishes to contest any third party claim, it will have
the option to defend, at the indemnifying party's expense, any such matter,
provided that the indemnified party (or in the case of the Company or the
Subsidiary, that entity itself) shall have the right, at its own cost and
expense, to participate in the defense of such claim or, if the
indemnifying party elects not to defend the claim, to conduct the defense
on its own behalf. If the indemnifying party conducts the defense of a
claim, neither party (or in the case of the Company or the Subsidiary, that
entity itself) will enter into any settlement agreement without the other
party's consent; provided, that the indemnified party (or in the case of
the Company or the Subsidiary, that entity itself) shall not object to any
proposed settlement which requires only the payment of money by the
indemnifying party and does not involve any admissions or stipulations by
the indemnified party, the Company, the Subsidiary, or the Schools or any
injunctive or similar relief or any other contractual obligations affecting
the indemnified party (or in the case of the Company or the Subsidiary,
that entity itself) or their respective business and operations. The
indemnified party shall cooperate (and the Purchaser shall cause the
Company and the Subsidiary to cooperate) with the indemnifying party in the
defense, compromise or settlement of any claim for which indemnification is
sought. If the indemnifying party elects not to conduct the defense of such
claim, the indemnified party (or in the case of the Company or the
Subsidiary, that entity itself) shall be permitted to settle or compromise
any such claim on such terms as it deems appropriate and such settlement or
compromise shall not prejudice the rights to indemnification hereunder.
(d) Notwithstanding Section 9.7(c), if an indemnified party
---------------
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result
of monetary damages for which it would be entitled to indemnification under
this Agreement, the indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise, or settle such
Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
(e) A claim for indemnification for any matter not involving a third-
party claim may be asserted by notice to the party from whom
indemnification is sought.
-54-
9.8. PREVAILING PARTY TO BE AWARDED LEGAL FEES.
-----------------------------------------
In the event of any litigation, whether at law or in equity,
arising out of this Agreement, the party prevailing in such litigation
shall be entitled to receive, upon application to the court, its
reasonable legal fees and expenses incurred in connection therewith.
9.9. OFFSET.
------
(a) Purchaser's obligations pursuant to the Seller Note shall be
subject to the offset rights set forth therein.
(b) Purchaser's obligations to pay the $500,000 portion of the
Holdback shall be subject to offset for alleged Damages according to
the following provisions:
(i) Purchaser's allegation of Damage shall be made in good
faith and shall not include any amount reflected the Final
Balance Sheet or in the first instance of a Claim for Damages be
for amounts which in the aggregate are less than the
Indemnification Threshold;
(ii) Purchaser shall submit a notice of a claim for
indemnification in respect of such Damages to Sellers (or to the
Seller or Sellers from whom it claims indemnification if not
proportionate as to all Sellers). The manner and procedure for
making such claim and the resolution thereof shall be as provided
in Sections 9.6 and 9.7 hereof.
------------ ---
(iii) Until the claim for Damages is resolved by a written
agreement of the parties or final, unappealable judgment issued
by a court or similar tribunal of competent jurisdiction
("RESOLUTION"), the amount claimed shall remain in escrow
pursuant to the terms of the Escrow Agreement.
(c) It is understood, for the sake of clarity, that the recovery
of Damages, whether by offset or otherwise, is subject to the
limitations of Sections 9.4 and 9.5, and that this Section 9.9 is not
------------ --- -----------
intended to convey any rights to recover sums in excess of such
limits.
9.10. Agreements Concerning Pending Litigation.
-----------------------------------------
The parties agree to the following with respect to the undernoted
litigation, all of which is pending or threatened as at the Closing Date and
disclosed on Schedule 4.18(a):
----------------
-55-
(a) with respect to the action against the Company by ▇▇▇▇▇▇ Security
Services Ltd. (the "▇▇▇▇▇▇ SECURITY MATTER"), the action threatened by
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (the "▇▇▇▇▇▇▇ MATTER") and the action threatened by
▇▇▇▇▇ ▇▇▇▇ (the "ZARB MATTER"), Purchaser shall cause the Company to defend
the ▇▇▇▇▇▇ Security Matter, to defend any action brought against the
Company or the Subsidiary (and/or any of the officers, directors or
employees of the Company or the Subsidiary) by ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in
furtherance of the Lotoski Matter or by ▇▇▇▇▇ ▇▇▇▇ in furtherance of the
Zarb Matter, and also to commence and prosecute counterclaims in those
actions, as and to the extent from time to time directed to do so by or on
behalf of the Sellers as hereinafter in this Section 9.10 is provided; and
------------
as regards any such action brought by ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇, to
claim indemnity or contribution from the Company's and/or the Subsidiary's
insurers as and to the extent directed to do so by or on behalf of the
Sellers as hereinafter provided. The ▇▇▇▇▇▇ Security Matter, the Lotoski
Matter and the Zarb Matter, and all related proceedings defended or taken
by or on behalf of the Company, are herein collectively referred to as the
"INDEMNIFIED LITIGATION." The provisions of Section 9.7(c) hereof shall
--------------
apply mutatis mutandis to the conduct of the Indemnified Litigation and the
conduct of any negotiations regarding a settlement thereof. Each Seller
agrees to indemnify Purchaser against 25% of all out-of-pocket costs
(including without limitation attorneys' and filing fees), out-of-pocket
expenses, adverse awards and other adverse judgments, incurred or paid
after the Final Balance Sheet Date (but only to the extent not taken into
account in determining the Net Worth) by the Company arising out of or in
connection with the Indemnified Litigation, determined net of any tax
benefit to the Company or the Subsidiary in that regard and after deduction
therefrom of the net after-tax benefits to the Company or the Subsidiary of
all favorable awards (including all favorable awards of costs and the net
proceeds to the Company or the Subsidiary of any settlements), if any,
obtained in or in respect of the Indemnified Litigation and all payments or
indemnities provided in that regard by any of the Company's or the
Subsidiary's insurers. In addition, each Seller agrees to advance to the
Purchaser, upon written request of the Purchaser, an amount equal to 25% of
the amount of out-of-pocket expenses of the Company or the Subsidiary from
time to time accrued and paid by the Company or the Subsidiary after the
Final Balance Sheet Date with respect to the Indemnified Litigation,
calculated net of the tax benefits to the Company or the Subsidiary of such
expenses.
(b) with respect to the action against the Institute Superieur de
Design de Mode as well as the related counterclaims which have been made in
that action against the Company and/or the Subsidiary and all further
counterclaims, if any, which may be made in such action, and all related
proceedings (such action, counterclaims and related proceedings are
collectively referred to as the "ISDM CLAIMS;" and the Company and the
-56-
Subsidiary, to the extent that they are parties to the action(s) or
proceeding(s) falling within the definition of the "ISDM Claims," is/are
referred to as the "CORPORATE ENTITY"), Purchaser shall cause the Corporate
Entity to diligently prosecute and defend the same as and to the extent
from time to time directed to do so by or on behalf of the Sellers as
hereinafter in this Section 9.10 is provided. The provisions of Section
------------ -------
9.7(c) hereof shall apply mutatis mutandis to the conduct of the
------
Indemnified Litigation and the conduct of any negotiations regarding
settlements thereof. Forthwith after the time at which all of the ISDM
Claims have been resolved (whether such resolution is by settlement or non-
appealable judgment), Purchaser shall calculate the amount of all out-of-
pocket costs (including without limitation attorneys' and filing fees),
out-of-pocket expenses, adverse awards and other adverse judgments,
incurred or paid after the Final Balance Sheet Date (but only to the extent
not taken into account in determining the Net Worth) by the Corporate
Entity arising out of or in connection with the ISDM Claims (the "PRE-TAX
COSTS"), and also net of all tax benefits to the Corporate Entity in that
regard (the amount of the Pre-Tax Costs less the amount of such tax
benefits is hereinafter referred to as the "COSTS"), as well as the amount
of the net after-tax benefit to the Corporate Entity of all favorable
awards (including favorable awards of costs) obtained in the ISDM Claims
and/or as a result of all settlements thereof (the "RECEIPTS"). If the
amount of the Receipts exceeds the Costs, Purchaser shall pay to each
Seller an amount equal to 25% of the amount of such excess (the "EXCESS").
If there is no Excess, each Seller shall pay to the Purchaser an amount
equal to 25% of the amount remaining after deducting the amount of the
Receipts from the Costs and deducting from that remainder the amount
remaining after deducting from the amount of the Pre-Tax Costs, to a limit
of $50,000 (Cdn) of the Pre-Tax Costs, the amount of all tax benefits to
the Corporate Entity by virtue of its having incurred the Pre-Tax Costs to
a limit of $50,000 (Cdn) of the Pre-Tax Costs.
(c) With respect to the complaints of 15 students of the Toronto
School enrolled in the full-time accelerated Year 1 class of Computer
Animation and made by their letters of February 14, 1997 and June 10, 1997
of which copies have been provided to the Purchaser, as well as related
complaints, claims and proceedings, Purchaser shall cause the Company to
make all reasonable efforts to resolve the same by offering to those
students free make-up courses, other courses, extra instruction and the
like and to the extent that such offers are accepted, performing them, all
without charge to or liability of the Sellers in that regard; and as
regards such efforts shall cause the Company to follow the reasonable
instructions of ▇▇▇▇▇ ▇▇▇▇▇ and keep him informed of all material
developments. If notwithstanding such reasonable efforts by the Company any
one or more of such students or related group of students shall commence
any action against the Company in respect of any one or more of the subject
matters of such complaints (all such action or actions
-57-
and all related proceedings is/are hereinafter collectively referred
to as the "ANIMATION CLAIMS"), Purchaser shall cause the Company to
defend the Amimation Claims as and to the extent from time to time
directed to do so by or on behalf of the Sellers as hereinafter in
this Section 9.10 is provided. The provisions of Section 9.7(c) hereof
------------ --------------
shall apply mutatis mutandis to the conduct of the Animation Claims
and the conduct of any negotiations regarding a settlement thereof.
Each Seller shall indemnify Purchaser against 25% of all out-of-pocket
costs (including without limitation attorneys' and filing fees), out-
of-pocket expenses, adverse awards and other adverse judgments,
incurred or paid by the Company (but only to the extent not taken into
account in determining the Net Worth) arising out of or in connection
with the Animation Claims, determined net of any tax benefit to the
Company in that regard, but excluding from the subject matter of this
indemnity (for certainty) all costs and expenses, if any, which the
Company incurs or will incur pursuant to any agreement to finally and
fully resolve any of the Animation Claims by providing make-up
courses, other courses, extra instruction or the like (collectively,
the "EXCLUDED ITEMS"). In addition, each Seller agrees to advance to
the Purchaser, upon written request of the Purchaser, an amount equal
to 25% of the amount of out-of-pocket expenses of the Company from
time to time accrued and paid by the Company, other than on account of
the Excluded Items, with respect to the Animation Claims, calculated
net of the tax benefits to the Company of such expenses.
Any direction by or on behalf of Sellers pursuant to this Section 9.10 may be
------------
oral or may be in writing, and (i) if given in writing by a majority of the
Sellers shall be binding upon all Sellers and (ii) if given either orally or in
writing by any one of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇ shall be binding upon
all Sellers. If in the course of the defense or prosecution by the Company or
the Subsidiary of any action which forms part of the subject matter of this
Section 9.10 it is necessary for counsel to the Company, the Subsidiary or the
------------
Sellers having carriage of that matter to obtain the immediate instructions of
the Sellers and none of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇ is then available to
provide such instructions either in person or by telephone at his telephone
number as then known to the Purchaser or such counsel, the instructions to such
counsel in that regard given by the Purchaser, formulated by the Purchaser in
good faith believing them to be in the best interests of the Company or the
Subsidiary (as the case may be) without consideration of the financial
arrangements provided for in clauses (a), (b) or (c) of this Section 9.10, shall
------------
be binding upon all Sellers.
10. FRAUD CLAIM.
-----------
At or prior to the Closing, Sellers shall purchase from the Company
for the sum of $30,000 (Cdn), but without any warranties of enforceability or
collectibility either express or implied, all rights of the Company to recover
from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ all sums which she has alleged to have stolen from the
Company and all rights of the Company to receive from its insurers reimbursement
therefor (the "▇▇▇▇▇▇▇▇ CLAIM"). From and after
-58-
the Closing, the Purchaser shall permit and shall cause the Company to permit
the Sellers to prosecute in the name of the Company or in their own names as the
Company's assignee, but at their sole cost and expense, such actions against the
said ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, her heirs, executors, administrators and other legal
representatives, and against the said insurers, as the Sellers in their
discretion from time to time consider to be appropriate in order to recover such
sums and receive such reimbursement and shall cause the Company to cooperate
fully with the Sellers in that regard. Sellers shall indemnify the Company
against all costs and expenses of such prosecution, including any award of costs
which may be made against the Company in any action or proceedings commenced or
prosecuted by the Sellers in that regard. Sellers represent and warrant that
nothing related to the aforesaid claim was included in the Financial Statements
and that nothing related to said claim in excess of $30,000 (Cdn) will be
included on the Final Balance Sheet.
11. MISCELLANEOUS.
-------------
11.1. TERMINATION.
-----------
This Agreement may be terminated at any time prior to the Closing
Date:
(a) by mutual written consent of the Purchaser and the Sellers;
(b) prior to the Closing by Sellers or Purchaser, if the other
party shall be in breach of any covenant, undertaking, or restriction
contained herein, the breach of which shall have a material adverse
effect on the transactions contemplated by this Agreement taken as a
whole, and such breach has not been cured within ten (10) business
days after giving written notice to the breaching party or parties of
such breach; provided, that if such breach is, in the reasonable
judgment of the non-breaching party, capable of being cured, but
cannot reasonably be cured within such ten (10) business day period,
no party shall be permitted to terminate this Agreement as a result of
such breach so long as the breaching party is diligently pursuing cure
of such breach;
(c) by Purchaser or Sellers if the Closing shall not have
occurred on or before June 30, 1997 or if a Legal Requirement shall
have been enacted, issued, promulgated or entered by any Governmental
Body or an injunction or order of a court or other Governmental Body
or Accrediting Body has been entered, in either case, which prohibits
or restricts the transactions contemplated hereby or an action or
proceeding shall have been instituted or threatened by any Person or
pending before a court or other Governmental Body or Accrediting Body
seeking to restrain or prohibit any of the transactions contemplated
hereby;
(d) by the Purchaser if any of the conditions specified in
Section 7 have not been met or waived prior to such time as such
---------
condition can no longer be satisfied; or
-59-
(e) by the Sellers if any of the conditions specified in Section
-------
8 have not been met or waived prior to such time as such condition can
-
no longer be satisfied.
In the event of termination of this Agreement, this Agreement shall forthwith
become null and void except for this Section 11 and Section 9, which sections
---------- ---------
shall remain in full force and effect and which shall survive such termination.
11.2. EXPENSES.
--------
Each party hereto shall be liable for the payment of the fees and
expenses incurred by such party or on such party's behalf in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement, including, without limitation,
legal, accounting, financial and tax advice, brokers, finders and other fees,
expenses and commissions. No sales or transfer taxes under the laws of Ontario
or Quebec will be payable by Sellers as a result of the sale of the Shares to
Purchaser.
11.3. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the rights hereunder shall not be assignable or
transferable without the prior written consent of all the parties hereto
provided however, that Purchaser shall be permitted to collaterally assign this
-------- -------
Agreement and all rights hereunder to its lender(s). Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. Notwithstanding the foregoing, the provisions of
this Agreement which are for Purchaser's benefit are also for the benefit of,
and enforceable by, any subsequent owner of the Company, the Subsidiary or the
Schools, or any of them if, such subsequent owner is an Affiliate of Purchaser
or Purchaser. The only parties to this Agreement are the Purchaser and the
Sellers and their successors, assigns, heirs, executors and administrators.
11.4. SEVERABILITY.
------------
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
11.5. COUNTERPARTS.
------------
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
-60-
DESCRIPTIVE HEADINGS; INTERPRETATION.
------------------------------------
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a Section of this Agreement.
11.7. GOVERNING LAWS.
--------------
This Agreement shall be construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Agreement shall be governed by, the laws of the State of
Illinois without giving effect to provisions thereof regarding conflict of laws.
11.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
EACH PARTY HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF ▇▇▇▇, STATE OF ILLINOIS AND IRREVOCABLY
AGREES THAT, UPON THE MOVING PARTY'S ELECTION, ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER RELATED DOCUMENTS
SHALL BE LITIGATED IN SUCH COURTS. EACH PARTY HERETO ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM
NONCOVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT. ANY PROCESS SERVED BY REGISTERED MAIL
TO A PARTY IS HEREBY ACKNOWLEDGED BY SUCH PARTY TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF
PURCHASER TO BRING PROCEEDINGS AGAINST SELLERS, OR ANY OF THEM, IN THE COURTS OF
ANY OTHER JURISDICTION.
11.9. WAIVER OF JURY TRIAL.
--------------------
EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND
THE RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY HERETO ALSO WAIVES ANY
BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THESE TRANSACTIONS, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
-61-
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.10. NOTICES.
-------
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given (a) when delivered personally or sent by
facsimile to the recipient, or (b) one (1) business day after the date such
communication is sent to the recipient by reputable express courier service
(charges prepaid). Such notices, demands and other communications shall be sent
to the parties hereto at the addresses indicated below:
If to Purchaser: Career Education Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: ▇'▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-62-
and Goldberg, Kohn, Bell, Black,
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Ltd.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. Black, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Non-Resident
Sellers, as set forth
hereto on Schedule
--------
11.10:
-----
If to Gross: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇
With copies to: ▇▇▇▇▇▇▇ ▇▇▇▇
Robins, ▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
11.11. SELLERS' REPRESENTATIVE.
-----------------------
Intentionally deleted.
11.12. ENTIRE AGREEMENT.
----------------
Except as otherwise expressly set forth herein and except for the
Stock Purchase Agreement, this Agreement and the exhibits and schedules hereto
embody the complete agreement and understanding by and among the parties and
their respective Affiliates, and supersede and preempt any prior understandings,
agreements or representations by or among the parties and their respective
Affiliates, written or oral, which may have related to the subject matter hereof
in any way, including, without limitation, that certain letter agreement dated
February 11, 1997 between Purchaser and the Company (as representative for
Sellers).
-63-
11.13. CURRENCY.
--------
Unless otherwise indicated all dollar amounts referred to in this
Agreement, including the symbol "$", refer to lawful money of the United States
of America.
11.14. ENGLISH LANGUAGE.
----------------
The parties confirm that it is their wish that this Agreement and any
other documents delivered or given pursuant to this Agreement, including
notices, have been and shall be in the English language only. Les parties aux
presents confirment leur volonte que cette convention de meme tous les
documents, y compris tous avis, s'y rattachant, soient rediges en anglais
seulement.
11.15. ANNOUNCEMENTS.
-------------
Except to the extent required by law or by any Governmental Body each
of the parties hereto agrees that no disclosure or public announcement with
respect to this Agreement or the transactions herein contemplated shall be made
by any party hereto without the prior written consent of each of the other
parties hereto, which consent shall not be unreasonably withheld.
11.16. TIME OF THE ESSENCE.
-------------------
Time shall be of the essence of this Agreement.
11.17. WAIVER.
------
Notwithstanding anything to the contrary contained herein, no waiver
by any party of any right or remedy hereunder shall be deemed to constitute a
waiver by such party of any other right or remedy hereunder or to create a
course of conduct.
-64-
IN WITNESS WHEREOF, the parties hereby have executed this Share
Purchase Agreement on the date first written above.
SELLERS:
/s/ ▇▇▇▇ ▇▇▇▇▇, ▇▇.
----------------------------------------
▇▇▇▇ ▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ King
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
PURCHASER:
CAREER EDUCATION CORPORATION, a
Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Its: Senior Vice President
-------------------------------------
-65-
LIST OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Seller Note
Exhibit C - Form of Letter of Credit
Exhibit D - Form of Sellers' Release
Exhibit E - Form of Noncompetition Agreement
Exhibit F - Form of Closing Checklist
Exhibit G - Form of Purchaser's Counsel Opinion
LIST OF SCHEDULES
Schedule 2.2 - Payment of Purchase Price
Schedule 3.1(c) - Allocation of Non-Competition Payments
Schedule 3.1(h) - Sellers' Required Consents
Schedule 3.1(j) - Preliminary Closing Balance Sheet
Schedule 3.2(f) - Termination of Guarantees
Schedule 4.4 - Sellers' Conflicts
Schedule 4.6 - Capitalization
Schedule 4.7 - Books & Records
Schedule 4.8(a) - Compliance with Laws
Schedule 4.8(b) - License and Permits
Schedule 4.8(c) - Investigations
Schedule 4.8(d) - New Programs Denied by ME
Schedule 4.9(a) - List of Policy Guideline Documentation
Schedule 4.9(b) - Material Deviations from Policy Guidelines
Schedule 4.11(b) - Leased Real Property
Schedule 4.11(c) - Capital Improvements to Leased Facilities Other
Facilities
Schedule 4.11(d)(i) - Leased and Licensed Assets
Schedule 4.11(d)(ii) - Permitted Encumbrances
Schedule 4.11(e) - List of Tangible Assets
Schedule 4.11(f) - Other Facilities
Schedule 4.12 - Material Miscellaneous Contracts
Schedule 4.13(a) - Tradenames
Schedule 4.14 - Financial Security Arrangements
Schedule 4.14(c) - Debts Incurred Since Interim Balance Sheet Date
Schedule 4.17 - List of Bank Accounts
Schedule 4.18(a) - Litigation
Schedule 4.18(b) - Judgments
Schedule 4.19 - Insurance
Schedule 4.20 - Environmental Matters
Schedule 4.21(a) - Employee Benefit Plans
Schedule 4.21(b) - Company Contributions to Employee Benefit Plans
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Schedule 4.22(a) - List of Employees, Consultants and Other Service
Providers; Compliance with Legal Requirements
Schedule 4.22(b) - Confidentiality, Noncompetition and Proprietary
Rights Agreements
Schedule 4.22(c) - Retired Employees and Directors; Severance
Agreements
Schedule 4.23(a) - Labor Relations; Compliance
Schedule 4.23(b) - Judgments
Schedule 4.23(c) - Wrongful dismissals
Schedule 4.24(a) - Tax Matters
Schedule 4.24(b) - Tax Audits
Schedule 4.24(c) - Interim Financial Statements
Schedule 4.26 - Affiliate Transactions
Schedule 4.27 - Absence of Certain Changes
Schedule 4.28 - Indebtedness
Schedule 4.29 - Conducted Business Since Interim Balance sheet
Schedule 5.3 - Purchaser's Consents and Governmental Approvals
Schedule 11.10 - Addresses for Notice to Non-Resident Sellers
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